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 employees are being transferred, and 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 for 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 an M&A deal.
1.5 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 (including managers of the participating companies) for fraud or capital fraud. Penalties for breaching parties may involve considerable fines or imprisonment for up to 15 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 mergers, acquisitions of shares of private companies pursuant to the Commercial Code or acquisitions of shares of joint stock companies pursuant to the Securities Act. 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 domestic merger of joint stock companies, 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 (incl. a draft of the merger agreement and the report of the board of directors) 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, joint stock companies whose shares are to be publicly offered 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 for qualified investors or for a limited scope of persons, namely less than 150 persons in one Member State, who are not qualified investors, or where the total amount in the 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 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 controlling portion in the target company. The terms of the public bid must be equal for all shareholders holding the shares of the same class and form and to which the same rights are attached. 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 the supervisory board and the employees' representatives or directly the employees of the target company of its content. 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 no one has yet accepted it).
Upon acquiring the shares of a public company representing at least 33% of the voting rights attached to the 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 an 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. Additionally, it cannot be 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 (traded on the regulated market); it also cannot be 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 also be 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 three to five 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 receivables or shares are also accepted. Consideration in public takeover transactions must be made either in cash or securities of the acquirer or as a combination of both. Should, however, the bidder offer consideration in the form of securities, it should also offer an alternative option in cash
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 holding the shares of the same class and form and to which the same rights are attached.
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 (these include interim certificates and other transferrable securities with voting rights admitted for trading on a regulated market in any Member State). 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.
In an asset deal (either through the sale of an ongoing business or part of it or through the sale of assets forming an economic unit), 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 employment, the employer shall inform the employees' representatives (or if no such representatives exist with the employer, the employees directly) 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. In addition, the Slovak Commercial Code, the Act on European Company and the Act on European Cooperative Company provide for rules on the determination of employees' participation rights in cross-border merger transactions.
2.10 What role do employees, pension trustees and other stakeholders play?
In principle, the employees do not play a significant role in M&A deals. As outlined in question 2.9, in case of asset deals, 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' representatives/employees are imposed on both the transferor and the acquirer of the assets.
If the deal is performed by means of a cross-border merger or a cross-border acquisition (merger) and the surviving company shall be seated in Slovakia, special provisions on the participation of the employees in a company's management (through membership in the surviving company's supervisory board) apply. In certain cases, such a merger shall not be registered in the Slovak Commercial Register, unless an agreement on the employees' 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. Also, with respect to mergers and demergers, the Labour Code grants to the employees' representatives consultation rights.
Finally, as already outlined in question 2.1 above, under the Securities Act, a takeover bid activates information rights of the employees' representatives or directly the employees, if there are no employees' representatives in the target company. Further, the employees' representatives/employees are entitled to submit a statement on repercussions of the takeover bid on employment which shall be attached to the common statement on the takeover bid prepared by the target company's boards (please see question 3.3 below).
Under Slovak law, pension trustees do not play a specific role in M&A deals. The Slovak Commercial Code, the Act on European Company and the Act on European Cooperative Company determine the role of the special negotiating body that negotiates with the management of merging companies the terms of employees' participation rights in cross-border merger deals.
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, along with further information, 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 approving the transaction, in all of the participating companies. Also, some documentation, such as the draft of the merger agreement, shall be filed with the publicly accessible Collection of Documents.
As for the takeover bids, the bidder is obliged to publish the notification of the takeover bid 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).
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, tax authority (for private companies) 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 made through a sale of an ongoing business or its part. 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. Additionally, pursuant to the Securities Act regulating takeover bids, the general meeting of the target company can decide that no restrictions on voting rights shall apply.
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, hostile bids are rare; mainly due to the low free float level of Slovak public 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. Furthermore, members of both target boards are obliged to prepare a common statement on the takeover bid which is submitted to the employees' representatives/employees who are entitled to draw up a statement on repercussions of the takeover bid on employment. Subsequently, the common statement is presented to the bidder and published.
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, notaries public or at certain post offices. 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. Financial statements of companies from 2013 onwards are mandatorily disclosed online at www.registeruz.sk. 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 the 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 (for details see above in question 2.1), the parties may in principle agree to keep negotiation confidential.
4.3 When is an announcement required and 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 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). The takeover bid cannot be published prior to approval by the NBS. In case of a mandatory takeover bid, the bidder shall disclose the current concentration amount of its shareholding in the target company on a weekly basis. The bidder is obliged to disclose summary results of the takeover bid and inform the target company thereabout.
General information on merger control shall also be published.
The asset deal in the form of a transfer of ongoing business or a part thereof (if it concerns a registered entity) and share deals relating to private limited liability companies and to joint stock companies with one shareholder are subject to registration in the Commercial Register and thus become public.
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?
With respect to public companies, 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.
As for the other types of M&A transactions, shares are bought outside the offer process.
5.2 Can derivatives be bought outside the offer process?
Slovak law does not regulate the purchase of derivatives as part of the offer process. Derivatives are usually traded OTC. In Slovakia, trading with derivatives is not very developed.
5.3 What are the disclosure triggers for shares and derivatives stakebuilding before the offer and during the offer period?
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 public company must, without undue delay, disclose the transaction to the target and the NBS.
Slovak law does not regulate purchase of derivatives as part of the offer process.
During the mandatory takeover bid, the bidder shall disclose the current concentration amount of its shareholding in the target company on a weekly basis.
5.4 What are the limitations and consequences?
Prior approval of the NBS or the Anti-Monopoly Office may be required.
Moreover, should a shareholder acquire at least 95% of the registered capital of a public company carrying voting rights and 95% of the voting rights, the squeeze-out and sell out rights are triggered.
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 and is their invocation restricted?
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 got much control over the target company during the process. Until the mandatory takeover bid is published, the bidder cannot exercise voting rights exceeding the controlling portion in the target.
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. Majority share deals in private limited liability companies are conditioned upon registration by the registry court.
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-month 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 and, in cooperation with the supervisory board, shall prepare a common statement on the takeover bid. It is not specifically required by law to inform shareholders and since voluntary and mandatory bids are also published in a nation-wide 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 and the board neutrality rule applies (please see question 3.3 above). The general meeting of the target company can resolve on opting into the breakthrough rule. For private companies, bylaws may restrict (however, not exclude) the transferability of registered shares. Public 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 do not have the right to increase 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.
In mid-2014, an amendment to the Act on Protection of Economic Competition was passed which, inter alia, facilitates the acceleration of the procedure of concentration clearance.
As of 1 January 2015, if approved by the Slovak parliament after the recent President's rejection, written consent of the bankruptcy trustee to (de)merger will become a CP to the registration of a (de)merger of a Slovak bankrupt company with the Commercial Register.
This article appeared in the 2015 edition of The International Comparative Legal Guide to: Merger Control; published by Global Legal Group Ltd, London.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
