Corporate M&A 2024 - Law And Practice

Finance Malta


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The local M&A market has shown slow signs of improvement when compared with the activity recorded at the beginning of 2023, and deal-making activity appears to be ramping up.
Malta Corporate/Commercial Law
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1. Trends

 1.1 M&A Market

The local M&A market has shown slow signs of improvement when compared with the activity recorded at the beginning of 2023, and deal-making activity appears to be ramping up. The COVID-19 pandemic did not have an impact on local deal-making activity. On the contrary, during the COVID-19 period, the level of M&A activity in Malta was at record levels. The lull registered in M&A activity over the past months was related to other factors.

 1.2 Key Trends

Private M&A transactions make up the lion's share of M&A activity in Malta, in terms of both value and volume. Most private deals tend to take the form of equity acquisitions through a Malta-registered special purpose vehicle (SPV) which effectively acts as the holding company for that investment. Alternatively, an SPV is established for the purpose of acquiring some or all of the target's assets. Reports compiled by third party service providers indicate that in 2023, Q1 through to Q2 represented the lowest quarters for aggregate M&A deal value, representing approximately EUR280 million. This is representative of the fact that the European Commission lowered its growth forecast to just 0.8% for 2023 as economic activity faltered in Q2 and multiple indicators trended down.

 1.3 Key Industries

Reports compiled by third-party service providers indicate that activity picked up through Q3 and Q4 where aggregate M&A deal value rose to EUR670 million. Relative strength can be seen in areas like industrials, pharmaceuticals, financial services, iGaming and commodity-based industries.

2. Overview of Regulatory Field

 2.1 Acquiring a Company

The majority of acquisitions take the form of either (i) a purchase of all the shares in a Maltese target company or (ii) an asset purchase of parts or all the assets forming part of the business of a Maltese company.

In a share acquisition, the ownership of the Maltese target company is transferred, and that target company's assets and liabilities move with it together with all associated risks and benefits. This type of transaction allows a new purchaser to continue the business of the Maltese target company with minimal interference to the business. On the other hand, an asset purchase will allow the purchaser to acquire parts of the business or the assets owned by the company rather than the shareholding of the company. This allows a purchaser to leave behind in the Maltese company assets and liabilities that it does not require, thereby providing a more flexible tool to manage risk and leverage benefits.

 2.2 Primary Regulators

The primary regulators for M&A activity are the Malta Business Registry, the National Foreign Direct Investment Screening Office, the International and Corporate Tax Unit and the Malta Competition and Consumer Affairs Authority. Depending on the business of the target in Malta, other regulators may also need to be involved, and these include the Malta Financial Services Authority, Malta Gaming Authority, the Medicines Authority Malta Enterprise and Indis Malta.

 2.3 Restrictions on Foreign Investments

Malta introduced restrictions on foreign direct investment in 2020, implementing the provisions of European Union Regulation 2019/452, which established a framework for the screening of foreign direct investments into the European Union.

Screening is required for transactions involving foreign (non-EU) investors aiming to establish or to maintain lasting and direct links in order to carry on an economic activity in Malta, including investments which enable effective participation in the management or control of a Maltese company and the economic activity falls within an activity listed in the National Foreign Direct Investment Screening Office Act or where one of the factors in the Act is met. Generally, all other transactions will not require screening by the National Foreign Direct Investment Screening Office.

 2.4 Antitrust Regulations

Depending on the nature of business undertaken by the acquirer and the business being acquired, transactions may need to analysed in the context of the local Control of Concentration Regulations and the EC Regulation on Control of Concentrations Between Undertakings (EUMR). The Regulations prohibit concentrations that might lead to a substantial lessening of competition in the Maltese market or a part thereof.

A “concentration” within the meaning set out in the local Regulations is a transaction where two conditions are met, (i) that the transaction is a merger or an acquisition of control (between two or more independent undertakings) and (ii) the said independent undertakings must satisfy the turnover thresholds stipulated in the Regulations.

If a transaction qualifies as a “concentration”, a notification will need to be made to the Malta Competition and Consumer Affairs Authority prior to its implementation. The notification needs to be made by the undertaking acquiring control. Following the notification, a notice is published and subsequently a decision is taken by Malta Competition and Consumer Affairs Authority. Depending on the type of investigation, the process can take weeks or months before a decision is issued.

The local Regulations also provide for a simplified procedure for concentrations which are considered as not raising serious doubts as to their legality.

 2.5 Labour Law Regulations

Acquirers of a Maltese company should ensure that employment laws applicable to the company's employees continue to be strictly followed and be aware that directors of the Maltese company may be liable to fines and criminal liability in case of certain breaches of employment laws. 

If the acquisition takes the form of a transfer of business (asset sale rather than an acquisition of the shares in the target), the Transfer of Business (Protection of Employment) Regulations (Subsidiary Legislation 452.85) will apply. These regulations include a strict procedure on the transfer of employees as well as rules on the conditions of employment. The Transfer of Business (Protection of Employment) Regulations (Subsidiary Legislation 452.85) implement the European Union Directive on Transfer of Undertakings (TUPE) (Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses).

 2.6 National Security Review

A review on the basis of national security interests is typically made on transactions which fall within the criteria of a relevant foreign direct investment (within the context of the National Foreign Direct Investment Screening Office Act), otherwise a transaction will not be reviewed on the basis of national security interests.

3. Recent Legal Developments

 3.1 Significant Court Decisions or Legal Developments

At the beginning of 2023, the Maltese legislature transposed EU Directive No 2019/2121 (the “Directive”) on cross-border conversions, mergers and divisions. This Directive sought to improve the existing rules on cross-border mergers. In transposing the Directive, the Maltese legislature widened the applicability of the regulations to also apply to cross-border operations carried out by or with companies situated outside the EU or EEA.

The implementation of this Directive should allow for companies situated in Malta and in other EU countries to adequately move within the EU under a robust and aligned framework. In addition, the extended scope introduced by the Maltese legislature should enhance Malta's attractiveness to companies beyond the EU's borders. It is expected that this legal development should result in increased activity in this space.

No judgments of relevance to this have been delivered by the Maltese courts.

 3.2 Significant Changes to Takeover Law

There have been no significant changes to the Maltese Capital Markets Rules (which transpose Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (the “Takeover Directive”) into Maltese law) in the past 12 months, nor is there currently any indication that any significant changes are being contemplated/may be introduced in the coming year.

4. Stakebuilding

 4.1 Principal Stakebuilding Strategies

Stakebuilding strategies are not customary in Malta – particularly in view of the market abuse considerations. Stakebuilding is expressly carved out from the safe harbour provided under Article 9 of the Market Abuse Regulation (Regulation (EU) 596/2014 of the European Parliament and of the Council) for the use of inside information obtained in the conduct of a public takeover or merger for the purpose of proceeding with that public takeover or merger.

 4.2 Material Shareholding Disclosure Threshold

To the extent that: (i) an issuer's securities are admitted to trading on a regulated market, and (ii) that issuer's home member state is Malta, the rules on the notification of the acquisition or disposal of major holdings as set out in the Maltese Capital Markets Rules shall apply. These rules reflect the local transposition of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (the “Transparency Directive”), and stipulate that any shareholder who acquires or disposes of shares to which voting rights are attached, shall notify (i) the issuer and (ii) the Malta Financial Services Authority (MFSA) of the proportion of voting rights of the issuer held by such shareholder as a result of the acquisition or disposal where that proportion reaches, exceeds or falls below the thresholds of 5%, 10%, 15% 20%, 25%, 30%, 50%, 75% and 90%.

The notification to the issuer shall be effected promptly, but in no case later than four trading days following the date on which the shareholder learns of the acquisition or disposal or of the possibility of exercising voting rights, or on which (having regard to the circumstances) should have learned of the acquisition or disposal, regardless of the date on which the acquisition, disposal or possibility of exercising voting rights takes effect, or is otherwise informed about the event changing the breakdown of voting rights. A shareholder shall be deemed to have knowledge (ie, learned) of the acquisition or disposal no later than two trading days following the date of the transaction in question.

Within three trading days of having received the notification, the issuer shall also make the notification available to the public by means of a company announcement to this effect.

More generally, all Maltese companies are obliged to submit a notification to the Malta Business Registry every time a change in the shareholding of a company occurs (without limitation).

In addition, and subject to certain exclusions, any natural person that holds, directly or indirectly, 25% plus one or more of the ownership or control over a Maltese company will need to be disclosed (and changes to such individual or the extent or nature of their holding notified as and when they occur). If no such natural person holds such percentage through ownership or control, the company will need to indicate the details of the senior management officials of the company.

 4.3 Hurdles to Stakebuilding

The main hurdles to stakebuilding have already been addressed in 4.1 Principal Stakebuilding Strategies.

It is technically possible to provide for additional reporting thresholds in one's articles of association, although this is not expressly catered for in the Maltese Capital Markets Rules. This, however, cannot be to the exclusion of the statutory reporting thresholds described in 4.2 Material Shareholding Disclosure Threshold.

 4.4 Dealings in Derivatives

Dealings in derivatives are allowed in Malta subject to the disclosure obligations set out in 4.5 Filing/Reporting Obligations.

 4.5 Filing/Reporting Obligations

The Maltese Capital Markets Rules provide that a notification shall also be made with respect to:

  • financial instruments that, on maturity, give the holder, under a formal agreement, either the unconditional right to acquire or the discretion as to their right to acquire, shares to which voting rights are attached, already issued, of an issuer whose shares are admitted to trading on a regulated market; or
  • financial instruments which are not included in the point above, but which are referenced to shares and which have an economic effect similar to the instruments referred to in the point above, whether or not they confer a right to physical settlement.

Indeed, the Maltese Capital Markets Rules expressly clarify that the above-mentioned financial instruments constitute “qualifying financial instruments” (which include transferable securities and options, futures, swaps, forward rate agreements, contracts for differences, any other contracts or agreements with similar economic effects which may be settled physically or in cash) which are to be considered when calculating the relevant disclosure thresholds as described in 4.2 Material Shareholding Disclosure Threshold.

 4.6 Transparency

A major holdings disclosure pursuant to the Transparency Directive (as transposed in the Maltese Capital Markets Rules) shall be comprised of the following elements:

  • the resulting position in terms of voting rights;
  • the chain of undertakings through which voting rights and/or financial instruments are effectively held, if applicable;
  • the date on which the threshold was reached or crossed;
  • the identity of the person entitled to exercise voting rights; and
  • for instruments with an exercise period – (i) an indication of the date or time period where shares can or will be acquired, if applicable, (ii) the date of maturity or expiration of the instrument, and (iii) the name of the underlying issuer.

More so, to the extent that financial instruments as referred to in 4.5 Filing/Reporting Obligations are concerned, the relevant voting rights relating to those instruments will need to be set out separately within the same disclosure form. 

Therefore, in disclosing major holdings in accordance with the Transparency Directive, the acquiror/s need not make known to the public the underlying purpose of the acquisition. In the context of a takeover offer, however, an offeror will need to provide (as part of the offer document) information with respect to its intentions for the future business of the target company.

5. Negotiation Phase

 5.1 Requirement to Disclose a Deal

Assuming that the transaction involves the acquisition/disposal of financial instruments which fall within the scope of the Market Abuse Regulation (Regulation (EU) 596/2014) (MAR), the general rule is that a transaction must be disclosed to the public as soon as it is deemed to constitute “inside information” as set out in Article 7 of MAR, provided that the disclosure of such information can also be delayed if the conditions set out in Article 17 of MAR are met. In other words, negotiations may (and typically do) remain confidential until such time as disclosure is required pursuant to MAR.

It should also be noted that the Maltese Capital Markets Rules also require an issuer to promptly make an announcement in the event that the board of directors of the issuer is advised or otherwise becomes aware that a purchaser is being sought for a “substantial shareholding” (ie, 10% or more) in the issuer, is advised or becomes aware of a firm intention to acquire or dispose of a substantial shareholding, or is advised or otherwise becomes aware that an offer has been made to acquire or dispose of a substantial shareholding. However, given the conflict between this requirement and the rules relating to disclosure of information in terms of MAR, the authors are of the view that the MAR rules should apply irrespective of the local (home-grown) disclosure requirements. In other words, there is an argument that disclosure should not be required where the information in question is not considered to be inside information, or where it is considered to be inside information, disclosure is being delayed in terms of the relevant provisions of MAR.

Additionally, in the event of a takeover offer as regulated under Chapter 11 of the Maltese Capital Markets Rules on takeover bids, a potential offeror shall, however, inform the MFSA of a bid and announce its decision to launch it within seven days of acquiring a “controlling interest” (as defined in 6.2 Mandatory Offer Threshold) in the target company. 

 5.2 Market Practice on Timing

Market practice on the timing of disclosures is typically aligned to the legal requirements, specifically those set out under the Transparency Directive and the Takeover Directive (as transposed into the Maltese Capital Markets Rules) and as described in 5.1 Requirement to Disclose a Deal

 5.3 Scope of Due Diligence

The scope of a legal due diligence process for a Maltese private target company typically covers corporate, employment, intellectual property and data protection, material contracts, and dispute resolution considerations. The legal due diligence process would include both the review of publicly available information (through searches in different registers) and the review of information/documentation uploaded in a virtual data room. Physical data rooms are no longer common, and parties generally opt for virtual data rooms. This has become the norm since the pandemic.

In addition and depending on the business which the target or its subsidiaries operate in, the scope might extend to regulatory, real estate, anti-money laundering and environmental considerations.

Where the target is a listed entity, the scope of any due diligence carried out is typically limited given that a large amount of information is already made available to the public in accordance with the prevailing transparency requirements applicable to listed entities and also given the general prohibition on the listed entity disclosing inside information to third parties (in a case where no exemption to the prohibition may apply).

The COVID-19 pandemic has not had a lasting effect on the scope or extent of due diligence exercises in Malta, other than (perhaps) a steadily-growing focus on ESG considerations, which may be interpreted as the market's reaction to “pricing-in” a target's ability (or otherwise) to withstand sustainability risks (such as future pandemics, geopolitical conflicts and other adverse environmental events) in view of its business model, workforce and supply chain.

 5.4 Standstills or Exclusivity

Parties to a transaction are generally free to negotiate contractual provisions and safeguards pursuant to the age-old principle of sanctity of contract. Exclusivity provisions are very common and are typically agreed upon at the very outset of a potential transaction, including (in the context of a takeover offer) as part of any memoranda of understanding entered into between the offeror and the major shareholders of the target on or around the date of disclosure of the offer to the public. These provisions would primarily seek to remove or restrict the target's ability to solicit competing proposals. Standstill provisions, on the other hand, are not as commonly sought.

The negotiation of any such clauses and/or agreements shall, however, at all times be subject to the principle of equal treatment of all shareholders of the target (including those which are not necessarily a party to a memorandum of understanding as referred to above, for instance), as provided under Article 3 of the Takeover Directive (as transposed in the Maltese Capital Markets Rules).

It is common for acquirers of Maltese private target companies to request exclusivity on a transaction, this exclusivity (when given) is typically for a restricted period of time (generally extendable) and occasionally against a fee. 

It is also common for sellers of Maltese private target companies to restrict access to information on the target company, especially when a pool of acquirers is interested in the acquisition. These practices are generally adopted to protect the business of the Maltese private target company.

 5.5 Definitive Agreements

Offer terms and conditions between the parties (in the context of a private M&A transaction) are typically set out and agreed upon in a letter of intent or memorandum of understanding where the intention to carry out the proposed acquisition is recorded. In the context of a takeover bid carried out in accordance with the Maltese Capital Markets Rules, the offeror will also be expected to draw up and publish an offer document that includes the terms and conditions of the offer as described in further detail in 6.1 Length of Process for Acquisition/Sale. Definitive agreements (generally irrevocable commitment undertakings) are typically entered into with major shareholders prior to the tender offer being published, although the terms and conditions offered to major shareholders would also need to match those eventually offered to all shareholders and thus reflected in the eventual tender offer.

6. Structuring

 6.1 Length of Process for Acquisition/Sale

The length of an M&A transaction varies on a case-by-case basis depending on a number of factors, including the complexity and/or protracted nature of negotiations, the general structure of the proposed transaction and any regulatory approvals required (including foreign direct investment notifications, merger control clearances and change in control notifications).

In addition to the above, in the event of a takeover offer carried out in accordance with the Maltese Capital Markets Rules, a number of additional hurdles need to be cleared. These include, but are not limited to:

  • the obligation to announce a bid within seven days of having acquired a “controlling interest” in the target (as defined in 6.2 Mandatory Offer Threshold);
  • the obligation to draw up and publish an offer document not later than 21 calendar days from the announcement of the bid;
  • the granting of a three-to-ten-week period (from the date of publication of the offer document) for the target's shareholders to properly consider the merits of the bid; and
  • the consideration of any competing bids lodged in the interim period.

No specific governmental measures initially taken to combat the effects of the COVID-19 pandemic have had any lasting effect on the deal-closing process.

Typically, acquisition of a non-regulated company takes between three and six months and acquisition of a regulated company between four months and 12 months. Naturally, the proactiveness of the parties involved has a direct effect on the pace of a transaction.

 6.2 Mandatory Offer Threshold

The Maltese Capital Markets Rules (in transposing the relevant provisions of the Takeover Directive) provide that, subject to certain exemptions which may be granted by the MFSA, a mandatory bid shall be lodged where a person acquires a “controlling interest” – ie, the holding by a person, or persons acting in concert with them, which when added to any pre-existing holdings, directly or indirectly give them 50%+1 of the voting rights of a company.

 6.3 Consideration

Acquisitions of private Maltese target companies are predominantly for cash consideration. That said, it is not uncommon for the acquirer to offer shares in itself or a parent entity as part of the consideration. In addition, it is also common for parties to agree to include as part of the consideration an earn-out component. The seller would be entitled to various sums based on the performance of the company over a period of time post acquisition. In many cases where earn outs are part of the deal structure, the buyer would require the seller to remain involved for a period of time after the acquisition to ensure that targets established by the business being acquired are met.

In the context of a takeover offer, however, an offeror may only offer shares (or a combination of both cash and shares) subject to the requirement to offer cash consideration as an alternative in all cases. Furthermore, an independent expert's report (containing an evaluation of the consideration being offered) must also be provided in all cases. Additional guidance included in the Maltese Capital Markets Rules to this effect also clarifies that while the consideration offered for a voluntary bid may be freely determined by the offeror (subject to the over-arching requirement to offer cash as an alternative in all cases), the consideration offered in the context of a mandatory bid must be “equitable” and calculated in accordance with set criteria provided in the Maltese Capital Markets Rules.

 6.4 Common Conditions for a Takeover Offer

Common conditions for a takeover offer include, but are not limited to, the granting of any antitrust and/or regulatory approvals necessary for the transaction to go through, and the non-occurrence of material adverse events which could have an impact on the target's financial position and/or operations.

The MFSA does not typically restrict the use of conditions in the context of a takeover offer, except in so far as these might run counter to the requirements of the Maltese Capital Markets Rules.

 6.5 Minimum Acceptance Conditions

Offers are typically conditional on a minimum acceptance threshold of 90% of the voting rights of a company, as this would enable the offeror to initiate a squeeze-out of the minority shareholders (subject to the issue raised in 6.10 Squeeze-Out Mechanisms).

 6.6 Requirement to Obtain Financing

Parties in a transaction involving a private/public target company in Malta are at liberty to subject an acquisition to conditions, including inter alia the condition of obtaining financing.

 6.7 Types of Deal Security Measures

Typical deal security measures employed in M&A transactions involving a Maltese target include the entry into of non-disclosure agreements, non-compete provisions and (in the context of a takeover offer) the negotiation of conditional irrevocable undertakings from the key shareholders of the target company to accept the offer if certain pre-determined conditions to the deal are met. 

Break fees may also be agreed to, although due care will need to be had when drafting the language/mechanics of the relevant clause/s. In the context of a takeover involving a Maltese target that is listed in another jurisdiction, regard should also be had to how such break fees (and other deal security measures) may be viewed in the context of the relevant rules governing offers in that jurisdiction and how the relevant takeover authority/panel would view this.

In the context of a Maltese target with an EU cross-border listing, an analysis of both the Maltese rules as well as the rules of the jurisdiction in which the target is listed should always be undertaken, whether in relation to deal security measures or otherwise. Apart from the fact that each market (trading venue) will have its own rules that may be relevant to the transaction, the Takeover Directive expressly provides (in the context of a listing on an EU “regulated market”) that rules of the member state where the securities are listed will apply to certain matters, while the rules of the member states where the company is registered will apply to certain others. Indeed, in cases where the Maltese target is listed on a regulated market situated in another EU member state, matters relating to the consideration offered in the case of a bid, in particular the price, and matters relating to the bid procedure, in particular the information on the offeror's decision to make a bid, the contents of the offer document and the disclosure of the bid, shall be dealt with in accordance with the rules of the member state where the regulated market is situated (and the information contained in this practice guide should be considered with this in mind).

Bidders in a transaction involving a private target company in Malta are at liberty to negotiate and agree any deal security measures, provided that such measures are not inconsistent with Maltese law. Non-solicitation provisions are generally standard in any Maltese acquisition deal.

 6.8 Additional Governance Rights

Subject to the obligation to launch a mandatory bid upon the acquisition of a “controlling interest” as described in 6.2 Mandatory Offer Threshold, a bidder who does not seek to own 100% of the voting rights within the target (which is not typically the case) would generally look to negotiate additional governance rights as part of a separate shareholders' agreement to this effect, or otherwise via the introduction of tailored control rights (connected to the holding of a specified percentage of voting rights) in the target's memorandum and articles of association

It is common for such acquirer to seek (i) the right to appoint one or more directors on the board of directors, (ii) inclusion of reserved matters which would allow them as a shareholder (whether minority or not) to vote on, (iii) higher quotas for certain board decisions, (iv) anti-dilution rights and (v) restrictions on transfers of the other shareholder's ownership.

 6.9 Voting by Proxy

A shareholder of a Maltese company is, at law, entitled to appoint another person as their proxy to attend and vote instead of them at a general meeting of the company. This notwithstanding anything contained in the memorandum and articles of association of the company. 

 6.10 Squeeze-Out Mechanisms

In the context of a Maltese target whose shares are listed on an EU “regulated market”, an offeror may invoke a statutory squeeze-out right where, following a bid made for all of the target company's shares, it has acquired not less than 90% of the share capital carrying voting rights and 90% of the voting rights in the target company; at which stage it may require all of the remaining shareholders to sell their shares to it for cash. Where the target company's shares are divided into different classes, the offeror may exercise their right of squeeze-out per class of shares subject to reaching the required threshold in that class.

Any and all squeeze-out rights must be invoked by the offeror within three months from the expiration of the acceptance period of the offer. Where the offeror has not announced that it will be exercising its squeeze-out rights, the remaining shareholders will be able to exercise their sell-out rights to require the offeror to buy their shares for a fair price for cash.

In cases where the Maltese target is not listed on an EU “regulated market” and no statutory squeeze-out right applies (as well as in cases where additional certainty might be sought by an offeror) it is increasingly common for tender offers to be conditional on the amendment of that target's memorandum and articles of association to introduce squeeze-out provisions which substantively reflect the provisions of the Takeover Directive.

 6.11 Irrevocable Commitments

It is common for an offeror to enter into conditional irrevocable commitments (prior to the announcement of a bid) with a target company's key shareholders to obtain additional comfort/certainty that a planned acquisition will go through (subject to certain conditions being met). The nature/extent of the irrevocable commitments procured by the offeror varies on a case-by-case basis depending on the particularities of the transaction in question, but typically require the shareholders to accept the offeror's bid within a set time period from its launch (subject to certain conditions being met) and to refrain from doing anything which may frustrate the bid.

7. Disclosure

 7.1 Making a Bid Public

In accordance with the Maltese Capital Markets Rules, an offeror shall disclose a bid to the public within seven days of acquiring a “controlling interest” (as defined in 6.2 Mandatory Offer Threshold) in the target company; having first ensured that they can fulfil, in full, any cash consideration (if this is being offered) and after taking all reasonable measure to secure the implementation of any other type of consideration.

Despite that stated above, the requirement for a public announcement will, however, be triggered immediately in the event that the target company's share price becomes subject to undue price movements due to rumour or possible speculation, the suspicion of a leak in confidential information or where it is desirable to make an announcement in order to prevent possible market abuse.

 7.2 Type of Disclosure Required

In the event of an issuance of shares as part of a business combination, an assessment will need to be made in terms of whether the issuance of shares would constitute an offer of securities to the public which would in turn require the publication of a prospectus pursuant to Regulation (EU) 2017/1129 (the “Prospectus Regulation”). The Prospectus Regulation does, however, provide for an exemption from the requirement to publish a prospectus in the circumstances in so far as shares are being offered in connection with a takeover by means of an exchange offer, or otherwise as part of a merger or division – provided, in each case, that a document is made available to the public describing the transaction and its impact on the issuer entity.

 7.3 Producing Financial Statements

The offeror of a bid disclosed in accordance with the Maltese Capital Markets Rules is not required to produce financial statements as part of the offer document.

 7.4 Transaction Documents

Transaction documents do not need to be disclosed in full or included in an offer document prepared in accordance with the Maltese Capital Markets Rules. A “fairness opinion” prepared by independent experts (including an evaluation of the consideration being offered against the background of the offer made) must be appended to the offer and, separately an opinion of the board of directors of the target company on the offer (including the effects of implementation of the offer on all the company's interests and specifically, employment) shall also be made available to the public.

8. Duties of Directors

 8.1 Principal Directors' Duties

It is a fundamental principle at law that a director of a company is bound to act honestly and in good faith in the best interest of the company (rather than its shareholders).

The Maltese Companies Act sets out the directors' general duties. These include (i) duty to remain within and not misuse their powers, (ii) duty to avoid conflicts of interest and conflicts of duty, (iii) duties to exercise care and skill, (iv) no profit rule, (v) duty not to compete with the company, and (vi) duty not to benefit from third parties (at the expense of the company). These general duties play a significant part in the manner in which directors navigate a transaction in the company in which they sit as directors, particularly in a management buyout scenario.

 8.2 Special or Ad Hoc Committees

It is common for Maltese target companies to establish special or ad hoc committees, typically composed of members of the management team of the company. Such committees are generally set up prior to the acquisition and allow for a more efficient process.

In case of management buyouts (or similar arrangements), the committees are generally composed of non-conflicting directors.

 8.3 Business Judgement Rule

There is currently no precedent in Malta with respect to the Maltese courts' deference (or otherwise) to the judgement of the board of directors in the context of a takeover scenario. This said, given that Maltese company law is heavily modelled on the UK equivalent, it is expected that a Maltese court asked to adjudicate a dispute would, in line with UK jurisprudence, decline to examine the merits of a business decision taken by a company's directors – except in so far as this is outright fraudulent or in flagrant breach of the directors' fiduciary duties in relation to the company. In the context of a takeover offer, the Maltese Capital Markets Rules emphasise (by virtue of guidelines to this effect) that when directors make recommendations in relation to bids, they are bound to act honestly and in good faith in the best interests of the target company, and shall at all times take into account the collective interests of their shareholders prior to and during any bid process.

 8.4 Independent Outside Advice

Directors of Maltese companies typically seek various independent third-party advice, including general business, legal, accounting, regulatory and tax advice.

In addition, it is very common for Maltese companies to have non-executive directors sitting on boards. Generally, these non-executive directors are practitioners in one of the above fields.

 8.5 Conflicts of Interest

Over the years, there have been a number of landmark judgments on conflict of interest of directors, managers and advisers. These cases are closely tied with breaches of fiduciary obligations which directors, managers or advisers may owe to a company.

9. Defensive Measures

 9.1 Hostile Tender Offers

Hostile bids are permissible in Malta but are not as common as “friendly” bids.

 9.2 Directors' Use of Defensive Measures

Where a target company has received a takeover notice, or has reason to believe that a bona fide offer is imminent, the directors of the target company must not take or permit any action in relation to the affairs of the company that could effectively result in the offer being frustrated or the shareholders being denied the opportunity to decide on the merits of the offer – except in so far as:

  • the action has been approved by an ordinary resolution of the shareholders themselves;
  • the action is taken or permitted under a contractual obligation entered into by the target, or in the implementation of proposals approved by the directors of the target, prior to its receipt of the takeover notice or it having become aware that the offer was imminent; or
  • in all other cases, where the action is taken or permitted for reasons unrelated to the offer, with the prior approval of the MFSA.

 9.3 Common Defensive Measures

Defensive measures are not typically adopted in Malta, particularly in view of the fact that board of directors has its hands tied once it is aware that a bona fide offer is imminent (as set out in 9.2 Directors' Use of Defensive Measures). Pre-offer defensive measures (prior even to the target board becoming aware of an imminent offer) such as “poison pills” and staggered boards can be used but are not common.

The key takeaway remains the fact that decisions on the control and ownership of a company should fall within the shareholders' remit, and that as a result, directors should proceed with caution when considering action that has the potential to frustrate an offer.

The COVID-19 pandemic has not had an overt effect on the nature of defensive measures in Malta.

 9.4 Directors' Duties

The directors must at all times honour their fiduciary duties to the company when enacting defensive measures (or otherwise making recommendations in relation to takeover offers). These include, in particular, their duty to act honestly and in good faith in the best interests of the company, and to promote its wellbeing.

 9.5 Directors' Ability to “Just Say No”

Any recommendation made by the directors as to the acceptance (or otherwise) of an offer shall be properly justified in view of their duty to act in the collective interest of the shareholders throughout the duration of the bid process. The directors should also ensure that sufficient information and advice is contained in the published offer document to enable shareholders to reach an informed decision, and are obliged to not only circulate their views on the offer, but also to explain to the shareholders the substance of any advice prepared by the independent expert/s engaged to report on the consideration being offered. All that being said, the board of directors of a target does not have the ability (also keeping in mind the restriction on them taking any independent action that might potentially frustrate the offer) to reject an offer on behalf of the shareholders or take any action that prevents it from taking place, although on the other hand the outright support of the directors (in terms of their opinion on the offer or in the entering into of certain commitments with the offeror) or lack thereof will always be an important factor in the likelihood of success of an offer.

The Maltese Companies Act requires a private company to include restrictions on the transfer of shares in its memorandum and articles of association. Consequently, shares in a private company cannot be transferred freely. It is common for the restriction to take the form of approval by the board of directors, and discretion is afforded to the directors to register or decline to register the transfer in the company. If a transfer is not registered, the transfer will be incomplete and title over the shares is not transferred. In these instances, the board of directors is usually given absolute discretion to register or otherwise. That said, the decision of the directors would still need to follow the fundamental principle that a director of a company is bound to act honestly and in good faith in the best interest of the company.

10. Litigation

 10.1 Frequency of Litigation

In both asset purchase and share purchase acquisitions in Malta, parties generally opt to have any disputes finally resolved by means of arbitration (either foreign or local seat). Arbitration provides both parties with a private forum to litigate their disputes. In contracts, lawsuits before the Maltese law courts are public and are generally avoided by the parties.

Information on arbitration awards would, understandably, not be available to the public and therefore an accurate picture on frequency of litigation is not possible. 

That said, based on the experience of the authors, litigation in M&A matters is uncommon and typically disputes are amicably and commercially resolved between the parties.

 10.2 Stage of Deal

Based on the experience of the authors, litigation (which is rare) is brought post completion.

 10.3 “Broken-Deal” Disputes

The authors are not aware of any publicly available local broken-deal disputes.

11. Activism

 11.1 Shareholder Activism

Malta has traditionally lacked a shareholder activist culture; probably owing to the limited size and liquidity of the Maltese capital markets, as well as it being largely composed of retail investors – with the market not necessarily appealing to large funds and/or strategic investors which have (unlike retail investors) the will and the resources to support such activism.

 11.2 Aims of Activists

Given the general lack of shareholder activism in Malta, it is, accordingly, not common for activist shareholders to encourage companies to enter into M&A transactions, spin-offs or major divestitures. This said, a recently increased focus on investor education, coupled with the steadily increasing sophistication of the Maltese market, provides some hope that shareholders will be better placed to pose meaningful and well-founded questions/challenges to their respective boards.

 11.3 Interference With Completion

Activists do not seek to interfere with the completion of announced transactions in Malta.

Originally Published by Chambers And Partners

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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