Portugal: Mergers & Acquisitions Comparative Guide

1 Deal structure

1.1 How are private and public M&A transactions typically structured in your jurisdiction?

There are generally two main routes for M&A transactions in Portugal:

• private tenders, involving several bidders; and
• a bilateral sales process between the seller and a potential buyer determined before the transaction process starts.

The most common structure involves a three-phase process:

• signing of a sale and purchase agreement, with certain conditions precedent;
• an interim period for the conditions to be met; and
• completion of the transaction.

There is a tendency among less sophisticated parties to complete the transaction through a promissory sale agreement, followed by a final sale agreement.

In simpler transactions, there can be a ‘one-shot' agreement. In this case, signature of the agreement and completion of the transaction take place simultaneously.

M&A transactions may also be structured as merger or demerger operations to:

• expand the target and increase its market share through a business combination of two entities (in the case of a merger or demerger followed by a merger); or
• prepare for a subsequent partial transfer of business (in the case of a demerger).

In this case, additional formalities apply, including a publicly registered merger and/or demerger plan.

Public M&A transactions entail the acquisition of control of a listed company, typically through a takeover bid. This consists of a public offer addressed to the holders of the securities of a listed company to acquire some or all of those securities, under a strict process supervised by the Portuguese Securities Market Commission (CMVM).

There are a few precedents of mergers between listed companies, but these are uncommon.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

In the case of private M&A transactions, we will focus on the sale of shareholdings, as the choice of a merger or demerger is typically made based on specific objectives (eg, business combination or preparation for a partial sale of the business).

Private tenders generally offer a greater opportunity for the seller to maximise the price, due to the competitiveness of the process; but they are generally costlier and more time consuming. Bilateral processes tend to be faster and cheaper; but they increase the risk of the seller not extracting the maximum value, due to only one potential buyer being engaged in the process.

If conditions precedent to closing apply, transactions that are structured in line with international standards (ie, with three phases – signing, interim period and closing) involve less paperwork than transactions based on a promissory sale agreement and a sale agreement. The latter model does not represent a material change in the structure, but is generally considered to involve the avoidable duplication of documents.

In public M&A transactions, the main differences between a takeover bid and a merger are as follows:

• Process: A takeover bid is a regulated acquisition process that takes place under the strict supervision of the CMVM; while a merger is an acquisition process that is privately negotiated between the boards of directors and shareholders of the participating companies, although some disclosures are also mandatory and the CMVM is also involved in the process.
• Consideration: A takeover bid allows the consideration to the target's shareholder to be paid in cash, securities or a combination of both; while in the case of a merger, consideration consists in shares of the company (and cash amounts paid cannot exceed 10% of the nominal value of the shares assigned to each shareholder).
• Minimum price: Unless a voluntary takeover bid complies with the price requirements for a mandatory takeover bid, a subsequent mandatory takeover bid must follow. However, there is an express exemption where one-third or one-half of the voting rights in a listed company are exceeded as a result of a merger.
• Exit right: A takeover bid allows free shareholders to leave the company; while in a merger, an exit right is granted to free shareholders only in specific cases.
• Target's status: In the case of a takeover bid, the target becomes a subsidiary; while in the case of a merger, it ceases to exist.

1.3 What factors commonly influence the choice of sale process/transaction structure?

The main factors include:

• the deal value;
• the nature of the seller (eg, private equity funds generally prefer a competitive sale, unlike family-owned companies);
• the level of sophistication of the advisers/parties;
• the complexity of the pricing calculation mechanism;
• the price structure (eg, if there is a deposit, the transaction is more likely to involve a promissory sale); and
• the sector in which the target operates (highly regulated sectors generally see more conditions precedent).

In public M&A transactions, the main factors influencing the choice of sale process/transaction structure include:

• whether the board of directors of the target is in favour of the transaction or is hostile;
• the potential consideration (cash or shares, and the calculation of price in both cases); and
• the preference for maintaining two independent entities (and possibly acquiring control without acquiring the total share capital).

With regard to consideration, under an exemption to the mandatory takeover bid obligation, any entity with more than one-third or one-half of the voting rights is not obliged to make a mandatory takeover bid if this resulted from a previous takeover bid that complied with the mandatory takeover bid requirements (in particular regarding price and based on the average share quotation in the previous six months). Therefore, before any transaction, market players should assess:

• whether the average share quotation in the previous six months was overpriced;
• the nature of consideration of the offer (cash, shares or a combination); and
• whether any other exemptions to the mandatory takeover bid apply.

2 Initial steps

2.1 What documents are typically entered into during the initial preparatory stage of an M&A transaction?

• Letters of intent;
• Memoranda of understanding, which may generally include exclusivity undertakings on behalf of the seller in bilateral processes;
• Non-binding offers;
• Non-disclosure agreement;
• Clean team agreements; and
• Binding offers.

2.2 Are break fees permitted in your jurisdiction (by a buyer and/or the target)? If so, under what conditions will they generally be payable? What restrictions and other considerations should be addressed in formulating break fees?

The buyer or the seller can be contractually obliged to pay break fees. There are no general restrictions regarding break fees or reverse break fees, and these are increasingly used in private M&A deals, although they are very rare in public M&A deals.

The payment of a break fee by the target should be carefully structured, as it could be regarded as financial assistance and be subject to the ‘best interests of the company' test under general terms, for the purposes of assessing the potential liability of the company's board of directors. If there is an advance price payment in a promissory agreement, the break fee will be double such amount, unless the parties have agreed otherwise. Break fees are penalties and could therefore be reduced by a court ruling if they are disproportionate to the level of losses.

2.3 What are the most commonly used methods of financing transactions in your jurisdiction (debt/equity)?

Although debt is still a common structure in acquisition finance (due to prevailing low interest rates), in recent years the market has been experiencing high levels of liquidity and significant activity among private equity funds, which tend to acquire assets exclusively with equity. Nevertheless, transactions involving a combination of equity and bank loans are also common.

In public M&A transactions, where the bidder is a listed company, a share capital increase of the bidder is commonly used. The share capital increase may be structured in two typical ways to finance the transaction:

• through a rights issuance, whereby the share capital increase is addressed to current shareholders and the company uses the offer proceeds to pay a cash consideration to the target; or
• through a takeover bid structured as an exchange offer, in which case the share capital increase of the bidder will be addressed to the shareholders of the target (ie, the bidder will offer its own newly issued shares in exchange for shares of the target).

2.4 Which advisers and stakeholders should be involved in the initial preparatory stage of a transaction?

Transactional financial advisers and legal advisers. The involvement of other technical consultants – in particular, regarding environmental or other technical-related matters – is also common, depending on the sector of the target. It is also important to understand the availability of the target management team and the conditions under which they will continue after the transaction.

We have recently seen a trend towards the submission of binding and non-binding offers without the involvement of legal advisers; however, it is not uncommon for such documents to create avoidable risks and contingencies later on.

2.5 Can the target in a private M&A transaction pay adviser costs or is this limited by rules against financial assistance or similar?

Limited liability joint stock companies cannot grant loans or grant funding or security by any other means to a third party to acquire or otherwise subscribe their own shares. Additionally, joint stock companies cannot grant financial assistance to third parties to acquire the shares of a company within the same group of companies. Any actions that fall within the scope of the restrictions on financial assistance will be deemed null and void. The majority of Portuguese scholars argue that the financial assistance prohibition rules apply only to joint stock companies and not to companies limited by quotas, as there is no specific prohibition against financial assistance for this type of company.

Mechanisms that are commonly used to prevent the application of financial assistance rules include:

• the creation of specific tranches under the financing agreement to segregate the amounts that can be guaranteed or secured by the Portuguese target from the funds raised to acquire the shares of the target;
• a pledge of the target's shares (the Portuguese target is prohibited from providing security or guarantees, but its shareholders can pledge the shares of the Portuguese target);
• the reimbursement of shareholder loans by the target; and
• post-closing merger between the acquisition SPV and the target.

3 Due diligence

3.1 Are there any jurisdiction-specific points relating to the following aspects of the target that a buyer should consider when conducting due diligence on the target? (a) Commercial/corporate, (b) Financial, (c) Litigation, (d) Tax, (e) Employment, (f) Intellectual property and IT, (g) Data protection, (h) Cybersecurity and (i) Real estate.

(a) Commercial/corporate

In the case of corporate-related matters, the due diligence will entail a detailed review of the organisational documents, corporate records and resolutions of the target and its respective subsidiaries (if any).

Other than matters relating to the capacity of the shareholders and of the target, as well as title and non-encumbrance of shares, other issues typically addressed include the following:

• the aggravated liability regime for the parent company;
• the shareholders' investment/capitalisation obligations (shareholder loans, supplementary and/or ancillary contributions);
• possible shareholders' and voting agreements;
• stock-related pre-emptive rights, rights of first refusal, redemption rights and other third-party rights or limitations affecting the shares (title, free disposal and voting or economic rights related thereto);
• annual accounts compliance requirements;
• the ultimate beneficial owner registry file; and
• the identification of directors and other corporate members of the target and respective subsidiaries (if any), and their remuneration.

A review of related-party transactions is also part of the investigation, including agreements or arrangements between the target or any of its subsidiaries (if any) and any current or former shareholders, officers, directors, employees, or shareholders of any type.

(b) Financial

With regard to financial-related aspects, the legal due diligence concerns an analysis of the respective contracted financing, including:

• the amounts involved;
• the maturity dates;
• the reimbursement conditions;
• guarantees and security interests;
• change of control clauses;
• negative pledge clauses (limitations to transfer or encumbrance of assets);
• cross-default provisions; and
• early termination events.

The scope of the due diligence also covers:

• the formalities to be complied with before and after closing of the transaction, considering the financial agreements of the target; and
• a detailed analysis of the terms and conditions of intragroup and related-party loans.

(c) Litigation

A detailed review of relevant lawsuits – including special revitalisation proceedings, insolvency proceedings, out-of-court company recovery scheme (RERE) proceedings, civil claims and injunctions – is recommended.

As general rule, in Portugal, lawsuits are public and made available by the court (exceptions include injunctions and specific stages of criminal proceedings). Through this information on pending and recently closed cases, it is possible to assess the target's contingencies and liabilities, settlements, court fees and so on. It is also relevant to confirm whether any special revitalisation proceedings, insolvency proceedings or RERE proceedings are pending against the target. Should this be the case, it might indicate that the target is experiencing economic difficulties, lacking sufficient assets and/or potentially unable to meet its financial obligations.

(d) Tax

Due diligence in this regard encompasses a full analysis of the target's tax situation, which is carried out by analysing its:

• corporate income tax returns;
• accounts;
• value added tax periodic returns;
• withholding taxes; and
• where applicable, social security payments, real estate taxes, real estate transfer taxes and stamp tax payment notes concerning the applicable tax limitation period (eight years for real estate transfer taxes, five years for social security contributions and four years for other taxes).

The aim is to determine whether there are any tax contingencies which may lead to additional tax assessments, compensatory interest and tax penalties imposed by the Portuguese Tax Authority.

(e) Employment

Notwithstanding the existence of specific sectoral characteristics that may have a significant impact on the due diligence exercise in this regard, a buyer should pay particular attention to the following matters, among others:

• special employment contracts (eg, temporary work, fixed-term employment contracts, their grounds and duration);
• service providers;
• the status of members of corporate bodies (notably, if they also have an employment contract with the company);
• remuneration and benefits (taking into account the duties, positions and seniority of employees, as there may be special remuneration items);
• limits and organisation of working time;
• collective employment regulation instruments (including the special regimes provided for therein); and
• vocational training and amount of hours provided.

In relation to social security matters, the buyer should verify:

• the monthly payment of the respective employer and employee deductions;
• how the various remuneration components and benefits granted to employees are considered under the applicable legislation; and
• whether the effective tax rates are applicable.

(f) Intellectual property and IT

In order to assess whether there are any contingencies which may lead to loss of rights or title to use intellectual property, or give rise to criminal or civil liability of the target, a detailed review of its owned, licensed or used intellectual property (ie, patents, trademarks, designs, trade secrets, copyright and related rights, software and database rights) should be undertaken, including:

• verification and analysis of ownership or title for its use;
• analysis of agreements with the target's employees, affiliates and/or third parties referring to or with an impact on the ownership and/or use of the target's intellectual property; and
• analysis of pending lawsuits relating to IP rights.

(g) Data protection

A detailed review of the target's data protection procedures and policies should be undertaken – for example:

• privacy and cookies policies;
• data retention policies;
• information security policies;
• device and email usage policies;
• procedures for data subjects exercising their rights;
• procedures for managing data breaches and similar incidents;
• data protection impact assessments; and
• records of data processing activities.

This detailed review should further encompass:

• analysis of the relevant General Data Protection Regulation-related compliance materials;
• verification and analysis of agreements with the target's employees, affiliates, subcontractors and/or third parties (eg, employment agreements, data processing agreements, intra-group data sharing agreements and binding corporate rules);
• analysis of the cookies management platform and cookies banner installed on the target's website; and
• assessment of the consent check boxes for direct marketing purposes.

Finally, it must be determined whether there are any contingencies, such as data breaches or similar incidents, that may lead to fines, reputational damage or private enforcement litigation affecting the target.

(h) Cybersecurity

Cybersecurity due diligence depends on the target's business area. On the one hand, the general cybersecurity legal framework applies only to certain sectors. On the other hand, targets that are active in certain business areas must comply with other specific regulations (eg, targets in the telecommunications sector must comply with additional requirements imposed by the telecommunications regulator).

For targets that fall within the scope of the aforementioned general cybersecurity legal framework, due diligence comprises a detailed review of:

• the target's cybersecurity and information security procedures;
• documented security incidents; and
• notifications of security incidents to the National Cybersecurity Centre.

Where the target is subject to specific regulatory requirements relating to cybersecurity, the due diligence will also entail confirmation of compliance with the applicable regulatory framework on a case-by-case basis.

(i) Real estate

The due diligence will comprise an analysis of the situation of the properties owned or used by the target, including:

• verification and analysis of ownership or title for the use of the properties;
• analysis of liens, encumbrances, agreements referring to (or with an impact on) the properties (and respective compliance) and other restrictions on ownership or use;
• completeness and harmonisation of the property documentation (with different levels of analysis for owned or used properties);
• validation that the properties are duly licensed for the intended purposes;
• verification of the application of any restrictions arising from legal regimes (eg, for lease agreements); and
• for real estate companies, analysis of compliance with anti-money laundering duties – that is, communication of transactions to the Institute for the Real Estate and Construction Public Markets.

3.2 What public searches are commonly conducted as part of due diligence in your jurisdiction?

The most common public searches relate to:

• existing insolvency proceedings;
• confirmation of the public ultimate beneficial owner register; and
• obtainment of updated versions of the relevant commercial and real estate certificates.

Certain information of listed companies is also available on the Portuguese Securities Market Commission's website and the company's website. This includes:

• financial information;
• privileged information;
• corporate governance reports;
• qualifying shareholdings; and
• other relevant information which it is legally mandatory to disclose to the market.

3.3 Is pre-sale vendor legal due diligence common in your jurisdiction? If so, do the relevant forms typically give reliance and with what liability cap?

Vendor legal due diligence is relatively common, especially where a professional investor (eg, a private equity fund) is the vendor. The purpose of this process is to assess the post-transaction risks and liabilities, and to include the relevant reports in the materials shared by the vendor with bidders in competitive processes, where applicable. Reliance is not usual, but can be required and negotiated within the context of the transaction. In relation to the liability cap, there is no market standard, but it usually relates to the amount of fees charged by the legal adviser in the due diligence process.

4 Regulatory framework

4.1 What kinds of (sector-specific and non-sector specific) regulatory approvals must be obtained before a transaction can close in your jurisdiction?

Depending on the target's market share and the scope of its activities, authorisations from the following bodies, among others, may be required:

• the competition authority or the EU Directorate-General for Competition;
• the Portuguese Securities Market Commission;
• the Portuguese Central Bank;
• the Portuguese Insurance and Pension Fund Authority;
• the Regulating Authority for the Media; and
• the National Aviation Authority.

4.2 Which bodies are responsible for supervising M&A activity in your jurisdiction? What powers do they have?

There are no specific bodies or regulators that supervise M&A activity in Portugal, other than the regulators of specific sectors and regarding specific transactions.

4.3 What transfer taxes apply and who typically bears them?

Real estate transfer tax (RETT) is due in connection with the acquisition of real estate and must be borne by the buyer. The rates of RETT vary according to the use of the property and the taxable base is the highest of two possible values:

• the tax value of the property; or
• the transaction value (ie, the price actually paid for the property).

Stamp tax is also due on the same taxable basis at a rate of 0.8%.

Moreover, the direct acquisition by a single shareholder of more than 75% of the shares of a company is subject to RETT (but not to stamp tax) if:

• more than 50% of the company's assets is comprised, directly or indirectly, of properties located in Portugal; and
• the properties are not assigned to an agricultural, industrial or commercial activity not related to property trading.

RETT is due by the buyer at a rate of 6.5% on the highest of two possible amounts:

• the property's value in the financials of the Portuguese target; or
• the property's tax value.

5 Treatment of seller liability

5.1 What are customary representations and warranties? What are the consequences of breaching them?

• Title and capacity;
• Corporate;
• Financial;
• Real estate and other assets;
  Accounts;
• Conduct of business;
• Regulatory;
• Labour;
• Tax;
• Environment;
• Data protection;
• Intellectual property;
• Information technology;
• Litigation; and
• Consequence of breach is typically liability (capped at a percentage of the price) of the sellers towards the company and/or the purchaser for damages, usually as sole remedy.

Fundamental (or title) warranties (typically title and capacity) could trigger termination and/or can be uncapped or capped at the deal value.

It is relatively common to have specific indemnities for material risks identified in the due diligence process.

5.2 Limitations to liabilities under transaction documents (including for representations, warranties and specific indemnities) which typically apply to M&A transactions in your jurisdiction?

In relation to representations and warranties, the following liability limitations may apply, among others:

• validity period;
• cap;
• de minimis and basket (both tipping and deductible);
• knowledge limitation (due diligence disclosure); and
• anti-sandbagging provisions.

Specific indemnities may also be capped and subject to a validity period; but there are also deals where the parties agree that no limitation applies to the matters protected under specific indemnity provisions.

5.3 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?

Warranty and indemnity (W&I) insurance is becoming more common, as both sellers and purchasers appreciate the comfort and reliability of this mechanism. In particular, private equity funds may seek a clean exit as seller. This mechanism can also be useful where the transaction is subject to time pressures.

5.4 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?

Common claims guarantee mechanisms include:

• price retention or a parent company guarantee;
• escrow mechanisms;
• bank guarantees; and
• more recently, W&I insurance.

5.5 Do sellers in your jurisdiction often give restrictive covenants in sale and purchase agreements? What timeframes are generally thought to be enforceable?

Non-compete and non-solicitation obligations are relatively common, especially if:

• the target is a family-owned company; or
• the seller is involved in day-to-day management or has significant access to the target's distribution channels.

The covenants are usually effective for two to three years (which are the maximum time periods legally allowed, depending on the restrictive covenant's underlying obligation).

5.6 Where there is a gap between signing and closing, is it common to have conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

Usually, only conditions that are legally or contractually required for the transfer of the target's shares are necessary for completion. The bring-down of warranties is common, but not a condition per se. MAC provisions are not usual and, when used, the parties tend to restrict their scope to specific situations. In any case, an unforeseeable MAC could trigger termination or at least amendment of the term of the transaction, albeit perhaps in limited situations, pursuant to Portuguese law.

6 Deal process in a public M&A transaction

6.1 What is the typical timetable for an offer? What are the key milestones in this timetable?

The duration of an offer is usually six to 12 months, depending on:

• the bid type;
• any competing bids; and
• the process to announce the bid decision or the authorisation from the regulatory/competition authorities.

Every transaction is unique, but there are seven necessary phases:

• the preparatory phase;
• the bidder's decision to bid;
• the preliminary announcement;
• registration of the offer with the Portuguese Securities Market Commission (CMVM);
• the report of the target;
• the offer launch/period; and
• the offer results.

The preparatory phase involves procedures to decide on the takeover, including legal and economic-financial due diligence. All parties are under a legal secrecy obligation; but to avoid leaks, this phase should be as short as possible. The bidder then publishes a preliminary announcement to send to the CMVM, the target and the management of the regulated markets. Subsequently, the bidder has 20 days to request the CMVM to register the offer. The target's board of directors must issue a report to the public on the offer conditions eight days after receiving the prospectus and preliminary announcement. Launch conditions suspend these periods until the conditions are met (including antitrust/regulatory clearances and amendment of bylaws – for example, to remove a voting cap). The offer period is two to 10 weeks, but the CMVM may extend this under certain conditions – in particular, in the event of a competing bid. Competing bids must be launched by the fifth day before the first offer expires and the terms of both offers are then generally adjusted to run in parallel. The process ends with the calculation and disclosure of results.

6.2 Can a buyer build up a stake in the target before and/or during the transaction process? What disclosure obligations apply in this regard?

Stakebuilding is permitted prior to the transaction with some restrictions and during the transaction with some implications.

In the preparatory phase, stakebuilding may raise market abuse concerns, so the disclosure of qualified holdings is mandatory when (under the Securities Code) certain levels of listed company voting rights are exceeded. The target must communicate this to the CMVM within four business days of it happening or the target becoming aware of it, and must publish this information on the CMVM's website. Shareholder agreements to acquire, maintain or reinforce a qualifying holding, or to ensure or frustrate the success of a bid, must also be communicated to the CMVM by any party within three days. If anyone acquires a shareholding in a listed company directly or indirectly exceeding one-third or one-half of the share capital voting rights, it must make a general (mandatory) takeover bid; and the target's share price in the last six months will affect the minimum offer.

From the preliminary announcement publication to calculation of the offer's results, the bidder (and related persons):

• must not negotiate, outside the stock exchange, any securities of the same category as those of the offer or consideration, except if authorised by the CMVM (following an opinion by the target); and
• must inform the CMVM on a daily basis of transactions relating to the securities issued by the target or the category of securities that comprise the consideration.

Specific requirements apply to, and more implications arise from, competing bids and mandatory bids.

6.3 Are there provisions for the squeeze-out of any remaining minority shareholders (and the ability for minority shareholders to ‘sell out')? What kind of minority shareholders rights are typical in your jurisdiction?

There are three potential squeeze-out mechanisms under Portuguese law:

• Squeeze-out following a takeover bid: Following the launch of a general takeover bid for a listed company, if the bidder reaches 90% of the voting rights up to the offer's results and 90% of the voting rights subject to the bid, it is entitled to acquire, within three months, the remaining shares for fair consideration (in cash), calculated according to mandatory provisions.
• Squeeze-out following ‘delisting': After losing its public status, a listed company must appoint a shareholder to acquire, within three months, the securities owned by those shareholders that have not voted for delisting.
• Corporate law squeeze-out: Where a company has shares corresponding to at least 90% of the target's capital, it must disclose this fact to the target's directors within 30 days. In the following six months, the controlling company is entitled to acquire the shares of the remaining shareholders for cash consideration (or its own shares or bonds), supported by an independent chartered accountant's report.

If the deadlines mentioned in the first two points above pass without the controlling shareholder presenting its offer, the minority shareholders may impose the sale of their shares. In the case of a squeeze-out following a takeover bid, the same fair consideration (in cash), as calculated under the mandatory takeover bid provisions, will apply to the minorities' put option. In the case of a corporate law squeeze-out, if the controlling shareholder's proposal is not voluntary or satisfactory to the minority shareholders, they can submit the decision to court to determine the purchase price and conditions for purchase by the controlling shareholder.

6.4 How does a bidder demonstrate that it has committed financing for the transaction?

In takeover bids, the consideration may consist of a cash payment (cash offer), securities (issued or yet to be issued) or a combination of both. If the shareholders of the target are offered cash, the bidder must deposit the amount in question with a credit institution or provide a bank guarantee prior to registration of the offer. In some cases, bank commitments have also been accepted for these purposes. If securities are offered, they must have the proper liquidity and be easily valued. If the securities are already issued, they must be blocked before registration of the offer. Specific requirements apply to competing bids and to mandatory bids.

6.5 What threshold/level of acceptances is required to delist a company?

A listed company may lose its listed status if:

• following a takeover bid, a shareholder has reached more than 90% of the voting rights;
• delisting is resolved upon in a shareholders' general meeting by not less than 90% of the company's share capital (and, if applicable, by a majority of at least 90% of the relevant securities in meetings held by the holders of special shares or other securities that grant the right to subscription or acquisition of shares); or
• one year has passed since its shares were excluded from trading on a regulated market, based on the lack of public dissemination/free float.

Although not expressly provided for by law, the CMVM has held in the past that the requirements mentioned in the first two points above are cumulative, to protect minority shareholders. This is because when the delisting is approved in a shareholders' general meeting, the listed company must:

• appoint a shareholder to acquire, within the following three months, the securities owned by those that have not voted in favour of the resolution of the shareholders' general meeting; and
• provide evidence of the certainty of funds by means of a bank guarantee or cash deposit in a credit institution.

Delisting is requested from the CMVM by the company and, in the case of a takeover bid, may also be requested by the bidder.

6.6 Is ‘bumpitrage' a common feature in public takeovers in your jurisdiction?

‘Bumpitrage' is not a common feature in public takeovers in the Portuguese securities market, although the opinion of some relevant minority shareholders is sometimes disclosed in the media. Nonetheless, in a recent precedent, a minority shareholder intervened in a takeover bid by publicly disclosing its opinion on the offer and calling a shareholders' general meeting of the target to decide on one of the conditions applicable to the bid.

6.7 Is there any minimum level of consideration that a buyer must pay on a takeover bid (eg, by reference to shares acquired in the market or to a volume-weighted average over a period of time)?

In voluntary takeovers, there is no minimum consideration. However, the mandatory takeover rules below must be respected in voluntary takeovers if the bidder has not reached more than half the voting rights to benefit from the CMVM exemption regarding a subsequent mandatory takeover bid.

The mandatory offer price must at least match the highest of the following amounts:

• the highest price paid by the bidder or any bidder's related person (under voting rights aggregation rules) to acquire securities of the same class in the six months immediately prior to publication of the preliminary announcement; or
• the average price quoted in a regulated market in the same period.

In mandatory bids, the consideration may be securities of the same type as those targeted and admitted, or of the same category of securities of proven liquidity admitted to trading on a regulated market, provided that the bidder and any related persons (under voting rights aggregation rules) have not, in the six months prior to the preliminary announcement and until closure of the bid, acquired any shares representing the capital of the target using cash. Otherwise, equivalent consideration in cash must be offered.

If the consideration cannot be calculated by reference to the above criteria or if the CMVM holds that the consideration proposed is not justified or equitable (ie, is insufficient/excessive), the minimum consideration will be calculated at the bidder's expense by an independent CMVM-appointed auditor. If the consideration consists of securities, the bidder must specify an alternative in cash of equal value.

6.8 In public takeovers, to what extent are bidders permitted to invoke MAC conditions (whether target or market-related)?

Bidders commonly include assumptions in the preliminary announcement to protect themselves from any substantial change in the circumstances of the offer (whether target or market-related). Therefore, in the event of an increase in the risks of an offer due to an unforeseen and substantial change in the circumstances on which the decision to launch the offer was based, the bidder may modify or revoke the offer within a reasonable period, and always subject to the CMVM's prior authorisation and under the circumstances described below.

If the offer terms are amended, the modification must be disclosed immediately and the CMVM may extend the offer duration at its own initiative or at the request of the bidder. Any statements of acceptance made prior to this amendment are considered effective for the resulting offer.

Takeover bids may be revoked only in case of an unforeseen and substantial change in the circumstances on which the decision to launch the offer was based (whether target or market related). The revocation must be disclosed immediately. The CMVM must order the withdrawal of the offer if it concludes that it contains any illegality or violates any applicable regulation that cannot be cured. Revocation and withdrawal of the offer determines the ineffectiveness of the offer and acts of acceptance prior or subsequent to the revocation or withdrawal, with the right to restitution of whatever was handed over.

Specific requirements apply to mandatory bids.

6.9 Are shareholder irrevocable undertakings (to accept the takeover offer) customary in your jurisdiction?

Shareholder irrevocable undertakings to accept takeover bids are common in the Portuguese securities market and typically do not trigger acting in concert provisions. Purely unilateral irrevocable commitments should not per se result in the attribution of the corresponding voting rights to the parties. However, the existence of an agreement under which the parties agree to certain joint strategic decisions typically falls within the common cases of acting in concert (ie, cases where the parties exercise joint influence in relation to the management of a listed company).

7 Hostile bids

7.1 Are hostile bids permitted in your jurisdiction in public M&A transactions? If so, how are they typically implemented?

Portuguese law does not distinguish between a friendly or hostile acquisition or takeover, as there is no legal concept of a hostile takeover. However, it is quite common for such a distinction to be made based on the response of the target's board of directors and/or of the shareholders involved in the takeover bid in question, including in the report on the merits of the offer. Thus, a ‘hostile bid' may be defined as an offer that is submitted against the will or without the knowledge of the target's board of directors; and as such, they are allowed and common under Portuguese law.

The successful implementation of hostile bids depends on:

• whether control was acquired prior to the offer;
• whether defensive measures against hostile takeovers were put in place before the takeover was launched;
• the form of consideration and price of the offer; and
• the previous interest in a potential transaction by the larger shareholders, because measures to defend against a hostile takeover after it is launched are mainly taken by groups of controlling shareholders and not by the board of directors directly (which is subject to the EU rule of non-frustration).

7.2 Must hostile bids be publicised?

Portuguese law does not distinguish between friendly and hostile acquisitions or takeovers, so the key milestones outlined in question 6.1. will apply. They include publication of the announcement of the hostile bid.

7.3 What defences are available to a target board against a hostile bid?

Preventive and reactive measures are usually applied. Pre-existing defensive measures include:

• voting caps;
• preferred shares and other bylaw limitations; and
• contractual arrangements preventing the transfers of share, assets or business lines.

However, under the ‘breakthrough rule', these may be discarded pursuant to the target's bylaws if, as a result of the takeover bid, the bidder acquires shares representing at least 75% of the company's voting rights. This provision will not apply if there is no reciprocity – that is, if the bidder (or its controlling entity) is not subject to the same rules.

Regarding reactive measures, the scope of action of the target's board of directors is limited to day-to-day management after becoming aware of the takeover, to avoid any significant changes to the target's financial position (the neutrality rule). The target's board must also issue a report on the merits of the offer, which may be used to influence the outcome of the takeover.

Despite the neutrality rule, the board of directors may still utilise anti-takeover defences, even where they go beyond day-to-day management, if approved by a supermajority at a shareholders' general meeting. Shareholders may approve any defensive measures, which the board of directors must then respect. Even without shareholder approval, the board of directors can take the initiative to seek competing bidders. Finally, although frowned upon under good governance standards, ‘golden parachutes' are not generally forbidden (although they must be disclosed) and may also serve as an indirect means of protecting the directors.

8 Trends and predictions

8.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

After many M&A transactions were suspended due to the COVID-19 pandemic, recent months have seen a significant increase in M&A deals. Investors are keen to chase the opportunities that necessarily follow a crisis (including restructuring of distressed companies) and the fall in company valuations. We expect the IT, energy, infrastructure, tourism, industry and retail sectors to be of particular interest to investors in the coming year.

The most significant private M&A transactions in the last 12 months include:

• the sale of Portuguese petrol station operator Prio Energy by private equity fund Oxy Capital to Spain-based Disa Group;
• the sale of a majority stake in Logoplaste Group by The Carlyle Group to Ontario Teachers' Pension Plan Board;
• the sale by Sonae SGPS of a stake in Modelo Continente to CVC Advisers Company; and
• the acquisition by the Portuguese state of a majority stake in TAP Air Portugal from private shareholders.

In the public M&A market, there were several takeover bids in the last 12 months, which is uncommon on the Portuguese market. The main drivers for these were sector consolidation or moves to go private. The most significant offers in the last 12 months were:

• the mandatory takeover bid of Cofina SGPS for Grupo Media Capital;
• the voluntary takeover bid of Efanor Investimentos SGPS for Sonae Capital SGPS; and
• the voluntary takeover bid by Sodin SGPS over Semapa SGPS.

8.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms? In particular, are you anticipating greater levels of foreign direct investment scrutiny?

No. Greater levels of foreign direct investment scrutiny are not anticipated. While there have been some recent developments relating to sensitive sectors in European jurisdictions, Portugal is not expected to take a similar approach – at least in the short term.

With regard to M&A concerns, the Portuguese Securities Code is currently undergoing a material review. Several of its provisions are expected to be amended, as are other laws on the financial sector (including a new banking code, which was subject to public consultation in 2020), before the year end.

The planned amendment to the Portuguese Securities Code is expected to have an impact on takeovers, mainly with respect to the following:

• The offer prospectus content will be exclusively subject to EU laws;
• The legal framework on mandatory takeover bids will be amended – in particular, the rules on the offer consideration; and
• Squeeze-out following a takeover bid will apply to all companies listed in Portugal, provided that, for the companies in question:
• • Portugal is deemed to be the competent member state; or
  • such companies have their securities listed exclusively in Portugal (even where Portugal is not the competent member state).

Moreover, this squeeze-out rule will be made more flexible; and the mechanism will be available if, as a result of a takeover, the shareholder reaches more than 90% of the voting rights (no additional threshold will be applicable).

9 Tips and traps

9.1 What are your top tips for smooth closing of M&A transactions and what potential sticking points would you highlight?

• The experience of the legal advisers involved is a key factor.
• The preliminary documents (eg, binding and non-binding offer) should ideally tackle the typical key commercial discussion points besides pricing (eg, liability cap, scope of representation and warranties and covenants), to the furthest extent possible. This is especially so if the buyer intends to keep the target management team, and to avoid negotiation deadlocks or deal breakers at a later stage.
• The sale and purchase agreement should provide, again to the furthest extent possible, agreed forms of the documents required for closing.
• Regular contacts with the relevant authorities may also be essential to overcome any structural and operational hitches.

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.