International Law Office - Legal Newsletters, Law Firm Directory and Legal News

Albania

Public takeovers in Albania are regulated by Law 10236/2010. The law applies to publicly declared offers to obtain ownership of securities issued by a public company, and lays out rules relating to the conditions and procedures for taking control of public joint stock companies eligible to participate in a public takeover. There are no restrictions with respect to the nationality of such companies.

Albanian legislation recognises only mergers between companies with their principal place of business in Albania. However, a draft law on cross-border mergers was recently introduced for discussion. The law aims to establish the terms, procedures and legal effects of a cross-border merger between at least one Albanian company and a company with its principal place of business in an EU member state.

Argentina

Congress recently passed a new law imposing several limits on the ownership and possession of rural land by foreign companies and individuals. Strongly backed by the governing party, and supported by the most diverse political parties, the law follows the example of countries such as Brazil, which are tending to regain control over rural land by local citizens and to protect small-scale producers.

A leveraged buy-out of the target is one of the typical strategies used to push down debt on acquisitions. The Argentine tax authority recently audited this type of transaction and decided that the interest deduction must be disallowed, with the effect of eliminating leveraged buy-out transactions from the M&A arena. However, the authority's position can be viewed as a narrow interpretation of the current law.

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Australia

A break fee arrangement in an M&A transaction that was triggered by a target's independent directors withdrawing their recommendation has been criticized on review. As the fee was not triggered by the target's shareholders or a rival bidder, two review panels held that the directors should have been allowed to respond to changes in circumstances without triggering the fee.

The Australian Takeovers Panel has released for public comment a draft guidance note on financing arrangements for takeover bids, suggesting that a bidder must only announce a takeover offer when it believes that it will be able to implement the offer. Among other things, the note describes unacceptable circumstances for funding arrangements.

Off-market takeover offers usually include a number of conditions which, if not satisfied or waived, result in the withdrawal of the offer. The Takeover Panel recently issued guidance on actions which would frustrate a takeover bid by breaching such conditions. Such actions will usually result in the panel making a declaration of unacceptable circumstances.

In two recent decisions the Takeovers Panel stated that while bidders are free to make bids subject to due diligence-type conditions, target directors are under no absolute obligation to comply with the conditions. Target directors ultimately have the right to choose to whom, and on what terms, to provide information, in the best interests of the company and its shareholders.

Arrangements to pay break fees are becoming more common in Australian-based transactions. However, given the anti-competitive effect that a large break fee can have, the validity and enforceability of break fees is still a matter of some uncertainty. This update examines the existing legislation and case law on the subject.

Recent amendments to the Corporations Act have introduced onerous telephone monitoring requirements on bidder and target companies during takeover bids, with the aim of giving shareholders additional protection against misleading and deceptive conduct.

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Austria

Personal differences between shareholders in a limited liability company forced one shareholder to buy out another. However, it later turned out that a mistake by the accountant had led to a retrospective tax payment which had an impact on the company's profits for the financial year in which the sale took place, and thereby on calculation of the purchase price. The court assessed whether the purchaser could reclaim the loss.

Shareholders and directors of limited liability companies are regarded as consumers unless they can exercise a dominant influence on the company, the Supreme Court recently confirmed. As a consequence, they will benefit from the relevant consumer protection rules. Practitioners should therefore be aware of the consequences which could result from natural persons being a party to transaction agreements.

Asset deals involving Austrian entities must generally be registered with the Commercial Court. However, the exact documents that must be attached to such filings in order to prove the asset transfers in reasonable detail to the court are not specified. The responsibility for defining these standards is allocated to the courts. Two recently published Higher Regional Court of Vienna decisions clarified the documents required.

The Supreme Court has clarified a number of questions regarding Article 38 of the Commercial Code, one of the central provisions on asset deals. Should the parties contractually agree on an exclusion of the purchaser's liabilities in relation to certain of the seller's contracts, and decide to notify the exclusion with the Commercial Register, the court stated that there would be good reasons for registration by both parties.

The only way to uncover structural problems and reveal organisational weaknesses (in particular, in contract management) is by evaluating a company's internal compliance system. In order to serve clients' needs in a timely and cost-efficient manner, M&A lawyers must therefore shift their attention to compliance matters while due diligence is being conducted.

An unexpected fundamental change to the Foreign Trade Act was recently announced by the National Assembly. Once the changes to the act enter into force, acquiring Austrian undertakings, acquiring shares therein or acquiring a dominant influence in such undertakings will require the prior authorisation of the minister for economy, family and youth, if the target company is active in a field relating to public security and order.

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Azerbaijan

The new Ministry of Economic Development has been given power to approve certain creation, merger, consolidation, liquidation and acquisition transactions involving local entities. Its prior consent to such transactions is necessary where certain thresholds are met.

Azerbaijan has recently identified certain enterprises in a wide range of sectors for privatization. It is expected that privatization will involve a combination of closed subscription for employees, cash and voucher auctions, investment tenders and case-by-case privatization techniques.

Bangladesh

The Privatization Commission has listed and endorsed 71 state owned enterprises that are available for private ownership. The commission's recent meeting also approved a draft policy indicating the course of future privatizations.

New regulations have been introduced by the Securities and Exchange Commission according to which the commission will issue certificates for companies to perform depository business.

Recent acquisitions concern the Standard Chartered Bank, Scotia Bank and the country's first locally owned private fuel company.

Bolivia

The Law of the System of Sectorial Regulation governs mergers between companies in industries such as hydrocarbons, telecommunications, electricity and transportation. The relevant industries must consult the appropriate sectorial superintendency before any merger agreement.

Brazil

With the warming of the Brazilian economy and an increase in the overall income of the population, the education sector in Brazil is undergoing a phase of burgeoning development. The sector, which has previously been characterised by fragmentation, is experiencing a trend for consolidation. As such, the number of transactions involving the acquisition of private institutions has boomed.

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British Virgin Islands

The first plan of arrangement was recently completed under the BVI Business Companies Act. According to the act, a plan of arrangement may be used to effect a number of corporate actions. The primary purpose of this arrangement was to effect a going-public transaction for one BVI company by way of a reverse takeover of a second BVI company.

Corporate law in the British Virgin Islands provides for a number of mechanisms that can be used for the purpose of acquiring control of a company, but in the last 24 months there has been a noticeable increase in the occurrence of the use of top-up options. The attractiveness of the top-up option lies in the fact that it can be effected with a minimum of corporate approvals.

Bulgaria

To prevent further delays in the privatization process, the Bulgarian Parliament has passed a bill which aims to streamline the procedure for important privatizations. In particular, the bill specifies that the privatization of 12 designated companies shall not be subject to judicial review. However, the legislation is controversial and may be subject to constitutional review.

New legislation is expected to increase significantly the pace of privatization in Bulgaria. In particular, foreign investors may now participate in a large number of privatization procedures without some of the bureaucratic impediments partially created by the previous, fairly cumbersome, privatization mechanism.

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Canada

Overview
Including: Obtaining control of a public company; Hostile bids; Regulation and regulatory bodies; Pre-bid; Announcing and making the offer; Consideration; Post-bid; Target's response; Tax; Other regulatory restrictions.

In its recent decision in Stetson Oil & Gas Ltd v Stifel Nicolaus Canada Inc the Ontario Superior Court of Justice ruled that Stifel had breached its obligation to Stetson to purchase C$25 million of Stetson's subscription receipts pursuant to a 'bought deal' financing and ordered Stifel to pay Stetson approximately C$16 million in damages for the failed private placement.

In a move that could limit the options of potential acquirers and activist investors, while significantly increasing the paper burden for institutional investors and mutual funds, the Canadian Securities Administrators has proposed a significant expansion to the early warning obligations for investors in securities. The regulator aims to provide greater transparency and address concerns regarding hidden ownership and empty voting.

While still used sparingly, there has been a slight increase in the use of 'go-shop' clauses by Canadian targets in friendly acquisitions over the past few years. Given the potential benefits and limitations of go-shops, it is critical that targets and their advisers carefully negotiate and draft go-shops to maximise effectiveness.

Deficits in defined benefit pension plans will continue to be an issue in 2013. Purchasers and lenders must carefully review the financial position of the target's pension plans, and the target's current and future legal obligations under those plans, and determine the impact of those obligations on the value of the enterprise.

In 2012 the government reviewed its guidelines on how it will evaluate proposed acquisitions of Canadian businesses by foreign investors and, in particular, state-owned entities (SOEs). The revised guidelines and the government's announced policy as it relates to SOE investment in Canada continue to allow the government much flexibility in its decision-making process as it relates to such investors.

One of the most important considerations for M&A purchasers (especially in cross-border transactions) is managing tax issues. Foreign purchasers of Canadian entities will need to plan around significant changes to the Income Tax Act, which were enacted in 2012. It is advised that foreign purchasers work through these rules carefully whenever the Canadian target has interests in foreign entities.

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Chile

According to the rules of the new compendium of foreign exchange regulations, new cross-border financing and investing decisions will not be subject to the restrictions of Article 49 of the Central Bank Law.

The new Tender Offer Act regulates the acquisition of shares or convertible securities issued by public corporations. The terms and conditions of such acquisitions are covered in this update. Exceptions include acquisitions that occur as a consequence of mergers and inheritances.

The Capital Market Committee and the Public Works Ministry have devised a bond that offers an alternative investment instrument, particularly to institutional investors. Private investment has significantly increased as a result.

The creation of an Offshore Stock Exchange is designed to attract foreign issuers and investors, and to facilitate foreign investment for Chileans. New regulations aim to expedite this process.

China

The State Council has established several fundamental policies that seek to promote the development of diverse forms of ownership and turn state-controlled enterprises into ordinary joint stock companies. It also wishes to encourage private investment in the fields of finance, rail transport, energy, telecommunications, education and medical services.

Over the past two years, domestic private equity investment has greatly increased but, as a result of coordination problems between departments and their supervisory authorities, the Administrative Rules on Private Equity Investment Management have not yet been released. The government is concurrently implementing pilot projects and draft administrative regulations on the subject.

Many foreign investors in China face difficulties in assembling a successful business project team to implement their project. As well as considering the best composition of an internal team, this update looks at the selection of external consultants: what roles do they play, how should they be selected - and are they really necessary?

If venture capital investment enterprises make an equity investment in private small and medium-sized high-tech and new technology enterprises for more than two years, they are entitled to a 70% deduction of the total investment in the enterprises from the venture capital enterprise's taxable income once the two-year period for the equity holding is reached.

A new State Council policy proposes to open more sectors to private investors. Before the promulgation of the policy, some of the industries were monopolized by state-owned enterprises and were virtual no-go areas for private capital. However, the successful implementation of these policies and incentives depends on clear implementing rules. Otherwise, private investors will be back to square one.

For many companies approaching a transaction, due diligence is a tool to confirm compliance or to seek confirmation that the project is not excessively risky. For an acquisition in China, this is the wrong approach. This update considers legal due dilgence processes and tools, highlighting common problems for a foreign investor.

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Colombia

A recent resolution defines new illegal, non-authorized and insecure practices in relation to publicly traded companies in order to protect the rights of minority shareholders and to guarantee transparent decisions at general shareholders meetings.

Circular Letter 10 was issued by the Superintendency of Industry and Trade on August 6 2001 and states the conditions under which companies must seek the superintendency's approval for a merger.

Antitrust regulations in Colombia have changed recently with provisions included in Decree 266, dated February 22 2000. Article 118 amends Article 4 of Law 155 of 1959, regulating restrictive business practices and determining which powers are to be given to the Superintendency of Industry and Trade .

Cyprus

Overview
Including: Market and regulation; Pre-bid; Announcing and making the offer; Consideration; Post-bid; Target's response; Tax; Other regulatory restrictions; Reform.

Last year was a busy year for M&A professionals. Despite the relatively small and new stock exchange, 30 public offers were filed under the provisions of the new Law on Public Takeovers. In addition, the hidden value of investment companies led to counter offers and revised offers.

Cyprus has enacted Law 41(1)/2007 to incorporate the EU Takeover Directive into national law. One major amendment made by the law is that partial public offers are allowed only if permission is granted by the Cyprus Securities and Exchange Commission, which supervises and controls the Cyprus stock exchange.

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Czech Republic

The regulation of financial assistance must be taken into account when structuring many M&A transactions. Financial assistance in relation to acquiring shares in joint-stock companies in the Czech Republic is regulated in line with European legislation. Assistance in connection with acquiring a shareholding in a limited liability company is separately regulated by Czech law.

As in any M&A transaction, the legal due diligence process is an important part of the acquisition of a Czech limited liability company. A number of issues must be considered when carrying out due diligence. Many of these are neither new nor surprising for a foreign investor and can be resolved before closing the acquisition, but a number of country-specific issues may also arise, deriving from the provisions of Czech law.

Czech law continues to undergo considerable change in adapting to the pace of today's free market economy. There appears to be an overall move away from the rigid and formalistic legal doctrines of the past in favour of modern legal concepts. Although this may not have a direct effect on the number of M&A deals in the country, it will undoubtedly positively influence the costs and timing of transactions.

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Denmark

It is becoming increasingly common in Denmark for the parties to an M&A transaction to take out insurance in order to cover potentially deal-breaking issues, and to provide certainty and finality. Generally, however, it is not an option for deals with a premium of below €150,000.

It is unclear whether Danish limited liability companies can give representations and warranties to share subscribers in private placements. Generally, the view is that representations and warranties from the issuing company in private placements fall within the scope of legal obligations to which a Danish company can validly commit, since they are required by the international investor community.

The Danish Data Supervisory Agency has stated that the release of non-sensitive personal data to a potential purchaser and its advisers is compatible with the Danish Act on the Processing of Data, provided that those with access to the data have executed appropriate confidentiality agreements.

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Dominican Republic

Foreign investment in the Dominican Republic is continuing to expand and the number of corporate transactions, including mergers and acquisitions, is steadily increasing. There are three key reasons for the growth of mergers and acquisitions and other corporate transactions in the Dominican Republic: recent reforms to the Dominican legal system, the country's strong infrastructure and its geographical location.

Ecuador

New regulations have been passed in order to promote investment in Ecuador. These regulations include tax benefits and foreign investment contracts. It is hoped that they will have a positive effect on the economy.

Estonia

The Commercial Code has been amended in order to reduce the time it takes to carry out a merger procedure. The burdensome and unreasonable requirements of the earlier law have been amended to enable a merging company to file an application to register the merger in the Commercial Register just one month after the merger decision is made.

Since January 1 2006 the closing of transactions regarding the transfer of shares of public limited liability companies has become easier due to an amendment to the Commercial Code. The amendment abolishes the requirement to notarize the minutes of the shareholders' meeting when changing the supervisory board at the closing of a share sale transaction.

Amendments to the Commercial Code coming into effect on January 1 2006 will clarify the consequences of breaching financial assistance provisions and may affect acquisition financing. At present, the law does not specify the legal consequences of breaching certain loan prohibitions.

The right of first refusal is often at the centre of hostile takeover battles. For many years the use of this right has been heavily disputed and the rules relating to it have been criticized - it has seemed as though the concept will remain ineffective forever. However, recently Parliament made yet another effort to remedy the situation.

It is customary in Estonia to carry out due diligence investigations in relation to corporate acquisitions. However, the law imposes no duty of due diligence on the purchaser. Only at the point when the purchaser knows or should know about the shortcomings of the object of sale is the seller released from liability for the object's non-conformity with its contract.

Earlier this year Swedbank acquired Hansapank, the largest public company in the Baltic states. Due to its size, the transaction represented a serious test for the public takeover rules and financial supervision authorities in Estonia. A high level of public and media interest in the transaction drew attention to some original legal issues in Estonian practice

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Finland

The EU Acquisition Directive has been implemented in Finland through amendments to the Act on the Financial Supervisory Authority, the Act on Credit Institutions, the Act on Insurance Companies and several other acts regarding entities supervised by the Finnish Financial Supervisory Authority.

A new Companies Act (624/2006) entered into force on September 1 2006, of which the provisions on mergers implemented the EU Merger Directive. While the directive addresses only mergers of public companies, private company mergers continue to be addressed equally under the Companies Act. Through the act the legislature aimed to make the merger proceedings more flexible and straightforward.

The reform of the original, rudimentary Finnish public takeover regulations has, for the time being, come to an end. It began with the implementation of the EU Takeover Directive. Although the new regime cannot cover all situations, it gives far more guidance to the offeror and the target company's management in the event of a takeover.

The new Companies Act, which entered into force on September 1 2006, introduced a new form of legal merger, the tripartite legal merger. An essential feature of the tripartite merger is input by a party not participating directly in the merger. This third party is neither the merging company nor the receiving company, but rather the one which pays the merger consideration.

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France

Within the context of a transfer of securities, an independent expert can value the securities under two different statutory regimes laid down in Articles 1595 and 1843-4 of the Civil Code. Each presents its own advantages and drawbacks. In practice, the parties should provide for the application of the former and for the subsidiary application of the latter, so that the deal will not founder for lack of a valuation if the first method fails.

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Germany

A company's profitability depends significantly on its reputation with its customers, suppliers and other market participants (ie, its goodwill), as well as on the special market, production, marketing and other know-how of its employees. These assets are usually not protected by patents or similar IP rights. Therefore, the buyer of a business would be well advised to insist on a non-compete clause.

The treatment of 'phoenix' companies under German law is quite distinct from that in other jurisdictions. A new owner that carries on an existing business under an identical or similar name as that used by the original company may face unlimited liability for all debts arising from the business activity of the original company. Although this liability can easily be excluded, there are several pitfalls which must be avoided.

Amendments to the Foreign Trade Act and the Foreign Trade Ordinance have taken effect. They empower the Federal Ministry of Economic Affairs and Technology to control - and, in certain circumstances, block - the acquisition of companies and interests in companies in Germany by non-EU investors.

When negotiating a corporate acquisition, the buyer and the seller often agree on a standardized share purchase agreement. It is impossible for a seller to exclude itself from any liability for damage sustained by the buyer due to a defect which the seller was aware of but did not disclose. Many recent civil actions against enterprise sellers have been based on alleged breaches of disclosure obligations.

The federal government is planning to impose new restrictions on foreign investments in Germany. New draft reforms would empower the Ministry of Economics and Technology to review and prohibit or restrict, for reasons of public order or security, any direct or indirect acquisition by a non-EU/EFTA entity of 25% or more of the voting rights in a German resident enterprise in any industrial branch or trade sector.

The Federal Court has confirmed that financial support provided by a shareholder to a joint stock corporation will be subject to equitable subordination only if the shareholder has a stake of at least 25%. This is the sole criterion that applies; whether the shareholder is a managing director of the company is irrelevant.

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Greece

A Greek company financed by funds originating from Dubai recently acquired a 19.9% stake in the Greek Telecommunications Company. The government responded to this perceived threat by proposing a new law which would increase its golden share powers. While the law's validity has been challenged in Europe, it has nonetheless had the desired effect: the 19.9% stake has since been sold to Deutsche Telekom.

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Guernsey

The Companies (Panel on Takeovers and Mergers) Ordinance 2009 will come into force shortly, formalizing an agreement under which the UK-based panel regulates Guernsey takeovers and mergers by administering the City Code on Takeovers and Mergers.

One of the many changes introduced in Guernsey's comprehensive new companies law allows a Guernsey company and its members to enter into a scheme of arrangement where 75% or more of the members vote in favour. The Royal Court has now approved the first such scheme under the new legislation.

Honduras

Includes: Documentation, Filings and Fees; Disclosure Obligations; Loans; Directors' Duties; Shareholders' Approval; Minority Squeeze-Outs.

Hong Kong

The first batch of companies have been listed on Hong Kong’s new Growth Enterprise Market which offers lower entry but higher post-listing disclosure requirements than the stock exchange’s main board.

Hungary

Under Hungarian law, financial assistance is not generally prohibited, but is subject to certain restrictions under the Companies Act. Since limited liability companies and companies limited by shares are liable to their creditors alone, and as shareholders cannot be held liable for the company's obligations, the law provides for the protection of the company's assets and equity.

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Iceland

Although there are certain shortcomings with respect to Iceland’s newly amended Competition Act, it has been harmonized with EEA legislation. Now, the Competition Council must be notified of all mergers if the total turnover of the undertakings is at least Ikr1 billion.

The Iceland Securities Depository Ltd has just started business as the first electronic registrar for securities in Iceland. The country's security market will, as a consequence, become much more attractive to foreign investors.

India

The new Companies Bill, which is pending approval by Parliament, introduces drastic changes that curtail the powers of a company to buy back its own shares. In light of the proposed introduction of a tax on buy-back and the increased restrictions imposed by the bill, companies may be discouraged from buying back shares as a method by which to disburse excess cash or increase the value of shares.

Mergers and acquisitions in India are governed by a large number of individual laws. The Indian government recently tabled its proposed Companies Bill 2011 before the Lower House of Parliament seeking to replace the outdated Companies Act 1956. A number of key changes have been proposed in the bill that are expected to impact on M&A transactions involving Indian companies.

M&A activity in India has witnessed a number of regulatory and legal changes in 2011. Policy changes in the past two months have generated uncertainty over the legality and enforceability of put and call options. These options are found in almost all modern investment agreements, despite the fact that they are not specifically codified under Indian law.

Every successfully negotiated multi-jurisdictional transaction should have a backbone of legally enforceable contracts. It is not sufficient only to spell out the rights, duties and obligations of the parties, but crucial also to lay down the process to be followed in case of a dispute. Therefore, a dispute resolution clause in any contract assumes tremendous significance, especially in cross-border M&A transactions.

The Supreme Court has provided clarity on the interpretation of the words 'persons acting in concert' as embodied in the Substantial Acquisition of Shares and Takeover Regulations 1997. The case involved a dispute surrounding the offer price quoted by Daiichi Sankyo in its public announcement for an indirect acquisition of shares in Zenotech Laboratories Ltd.

The Substantial Acquisition of Shares and Takeover Regulations 1997 (the Takeover Code) established the fundamental rules for mergers and acquisitions. With market conditions evolving, it was felt that the regulations needed to be amended to align them with those of other global markets. A panel has submitted new recommendations for takeovers. The changes are bold and could be sweeping when implemented.

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Indonesia

The government has finally published the long-awaited new Investment Negative List. The new list sets out the lines of business that are closed to investment, as well as those that are open to investment on certain conditions. The new list replaces the previous list, which was issued in 2007.

The Capital Market and Financial Institutions Supervisory Board has issued a regulation regarding the buyback of shares issued by issuers or public companies. This regulation repealed and replaced previous decisions on the same subject matter. Among the board's considerations for issuing the regulation was the need to implement policies that are in line with provisions on share buybacks of the new Company Law.

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International

The road to a successful deal holds a wide variety of challenges for both acquirer and target. Bridging the gap between different estimates of the target's value is a fundamental step towards a successful outcome. Various types of earn-out provision can help, but careful drafting is required to prevent future disputes.

The boards of NYSE Euronext and Deutsche Boerse recently announced their intentions to form a business combination. The resulting company would be the world's largest exchanges operator by revenues and profit. The parties to the transaction will have to take into account the applicable provisions of various laws and regulations, considering German, US and Dutch legislation.

Ireland

The EU Takeovers Directive has been transposed into Irish law by the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006. As many of its provisions are similar to existing rules, it is unlikely to have a major impact. However, one relatively significant change concerns the squeeze-out of minority shareholders.

The last few years have seen a marked increase in M&A activity in the healthcare sector in Ireland, due to factors such as the attractiveness of Ireland as a base for the pharmaceutical industry and the government's approach towards the privatization of hospitals and care facilities. The main areas of growth are the pharmaceutical industry, healthcare staff providers and healthcare facilities.

The year 2005 saw a continuation of the growth in M&A activity which Ireland has experienced in recent years, thanks to substantial investment by Irish and overseas investors in both the public and private sectors. Although the number of transactions fell in 2005, the value of individual acquisitions and disposals rose steadily, maintaining a trend towards fewer but larger deals in key sectors.

A recent decision of the Irish Takeover Panel in relation to the purchase of shares by businessman Sean Dunne in Jurys Doyle Hotel Group plc illustrates the importance of strict compliance with the Irish takeover rules. The Takeover Panel ordered that the shareholding of Sean Dunne and DTC Construction Services Limited be reduced to ensure compliance with the rules.

A recent High Court decision will be of assistance in assessing arrangements concerning the acquisition of private companies, where questions of valuation in particular can often cause difficulty. It should reduce the incentive for a minority to frustrate a purchaser that wishes to use the Section 204 squeeze-out procedure, unless there are obvious reason to prevent use of the procedure.

The publication of Ion Equity's Tracker Survey for the fourth quarter of 2004 has confirmed the positive trend in M&A concerning Irish companies, reflecting the general resurgence in the Irish economy. Indicators for 2005 point towards a continuing trend involving high-profile transactions by private investors and a continuing interest in the attractiveness of Irish businesses.

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Israel

In a recent judgment, an Israeli court decided that the rule of fairness and equity should prevail in mergers, and that all shareholders of a public company should be paid the same price for each share. The court ruled that deals in which one shareholder receives extra benefits have no sound background and therefore should not be approved. This bold decision may be a cornerstone for future mergers.

Italy

Last year, the $21 billion Kinder Morgan bid for El Paso was challenged before a US court due to alleged breach of fiduciary duties by both advisers and company executives. A billion-dollar deal, a chief executive officer with underlying motives and conflicted investment banks are the perfect elements of a modern play with plenty of drama and plot twists for the international legal community. But what if this deal had happened in Italy?

When professional investors are entering into an investment agreement and can predict when the investment will reach maturity, a key consideration will be when and how to exit. A drag-along clause is one of the more interesting contractual clauses that may be included in agreements and bylaws to deal with exit issues.

As they are not specifically regulated in Italian law, representations and warranties - and the legal remedies available in the event of an infringement - have long been a source of controversy. Adopting certain precautions when drafting an acquisition agreement may save the acquirer from a number of costly mistakes.

New government powers of intervention and veto - affecting defence and national security, energy, transport and communications - are set to have a significant impact on investments by non-Italian entities. Among other things, they may give the government greater freedom to scrutinise sovereign fund investments, while Italian bidders for a target in a strategic sector may gain a crucial edge over foreign rivals.

In times of economic adversity, a material adverse change clause can be a vital part of an M&A agreement. However, such clauses do not provide clear-cut solutions and can raise problems of interpretation and enforceability, expecially if the crucial terms are vaguely defined. Parties concluding an agreement under Italian law should consider whether they can better protect their position by using additional remedies.

Deal makers are generally quick to see the positives in asset deals, and are often right to do so. However, crucial issues may arise from the fragmentary and ambiguous Italian legislation in this area. Advisers to acquirers and vendors must be aware of the divergent opinions in case law that may jeopardise the will of the parties.

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Jersey

While the M&A pipeline remains relatively strong, bringing deals to completion is proving challenging due to the tightening of available credit and uncertainty with asset valuations. A Jersey joint venture vehicle is a form of alternative structure by which companies can gain access to deals that might not be available through traditional mergers and acquisitions, and which can be used as a precursor to traditional M&A activity in future.

Some of the most common types of private equity acquisition transaction are leveraged buy-outs (LBOs) and management buy-outs (MBOs). Jersey companies, Jersey employee benefit trusts and Eurobonds quoted on the Channel Islands Stock Exchange have become integral components of the LBO and MBO transaction planning process.

The Companies (Jersey) Law 1991 has recently been amended by the Companies (Amendment 5) (Jersey) Regulations 2011. The new law aims to clarify and simplify certain merger procedures and enable Jersey incorporated companies to merge directly with a wider range of corporate bodies, including companies incorporated elsewhere.

As a result of the shortage of liquidity in the bank lending markets, many businesses need additional funding. One source of funds might be a private placement of shares. This update looks at some of the Jersey law issues that may arise in the context of a private placement of shares by a Jersey company.

Kenya

A proposed takeover or merger of a company listed on the Nairobi Stock Exchange is subject to the Capital Markets (Takeovers and Mergers) Regulations 2002 unless an exemption is granted by the authority under the regulations. Exemptions may be granted in circumstances that serve the wider interests of the shareholders and the public.

Several regulatory and other matters should be considered when dealing with any proposed takeover or acquisition of a business in Kenya. They include the application of the Transfer of Businesses Act, which seeks to protect the rights of creditors upon the transfer of a business, and the Capital Markets (Takeovers and Mergers) Regulations 2002.

Kenyan companies raise funds both through public issues and by way of private placements. The law relating to private placements is largely contained in the Capital Markets (Securities) (Public Offers, Listings and Disclosures) Regulations 2002 and the Companies Act. The regulations set out the circumstances in which an offer will be regarded as a private placement.

Before the enactment of the Privatization Act 2005 there was no legislative framework in relation to the privatization of government assets; the process has traditionally been undertaken through divesture of the government's equity in state corporations. The act will come into force upon publication of the requisite commencement notice by the minister of finance.

Latvia

The Saeima (Parliament) has adopted amendments to several laws, including the Law on Reinsurance, the Law on the Market for Financial Instruments, the Law on Credit Institutions and the Law on Insurance Companies and Supervision Thereof, giving effect to the provisions of the EU Acquisitions Directive. The amendments apply to the operations of financial market participants.

In comparison to the period of economic boom, during the last year the number of M&A transactions in Latvia has dropped considerably. Foreign and local investors are still interested in certain sectors of the Latvian economy; however, the present economic downturn has had a considerable impact on M&A activities, which have now almost come to a halt.

The amendments to the Law on Completion of Privatization of the State and Municipal Property and Use of Privatization Certificates recently came into force. The new amendments lift the restrictions on the privatization of land in Jurmala and Riga, and prescribe that it will be possible to use privatization certificates instead of compensation certificates in these areas.

The Cabinet of Ministers has adopted several regulations amending the laws and regulations dealing with privatization. The amendments were adopted to deal with the high number of privatization applications received between July 1 2006 and August 31 2006. Municipalities have one year from the submission date to review applications for privatization.

The Latvian Parliament has amended the Financial Instruments Market Law in order to ensure compliance with the EU Directive on Takeover Bids. The amendments affect share redemption offers by providing new or updated definitions, more detailed procedures and additional powers, and clarifying the share redemption procedures.

In Latvia, due diligence is increasingly utilized as a tool for examining the target company's operations before the acquisition of shares. Prior to or after signing an agreement on the purchase of shares, the purchaser may itself or through its representatives perform a due diligence investigation into the company, usually comprising financial, legal and organizational enquiries.

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Lithuania

The Supreme Court has issued a decision which recognises the importance of representations and warranties when entering into share sale and purchase contracts. Its analysis helps to protect honest purchasers against fraudulent vendors or the unconscionable acts of their employees.

Following the Lithuanian government's decision to de-monopolize production of strong alcoholic beverages, four state-controlled companies have been tendered for privatization. The government has already privatized Lithuania's three leading strong alcohol producers and expects to finish privatization of the fourth producer in the first half of this year.

The government has chosen three of the successful bidders for Lithuania's state owned alcohol producers. The State Property Fund has already started negotiations with potential buyers. In related news, the Lithuanian Parliament has delayed the start of the liberalization of the domestic alcohol market by six months until January 1 2004.

The Lithuanian government has decided to privatize its majority equity stakes in four Lithuanian alcohol producers. The privatization will be subject to certain conditions, including maintaining the basic activities of the companies for five years. Potential buyers should be companies with at least five years' experience of producing or trading in alcoholic beverages.

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Luxembourg

In many ways, the EU Alternative Investment Fund Managers Directive complements a number of Luxembourg's initiatives to anticipate the beneficial impact of the private equity sector by developing regulated, tailor-made investment vehicles. It gives Luxembourg the opportunity to position itself as a pan-European and global distribution platform for alternative investment funds.

Luxembourg's attractiveness to the private equity industry is the result of a combination of factors, including an investor-friendly environment, flexible, contract-based company law provisions and the responsiveness of the Luxembourg legislature to practitioners' needs. In addition, Luxembourg offers a number well-adapted private equity investment vehicles.

Malaysia

Overview
Including: Regulatory framework; Application of Takeover Code; Types of offer; Persons acting in concert; Takeover process; Terms; Consideration; Timing; Announcements; Disclosure of dealings; Post-bid matters; Other noteworthy matters.

As mergers and acquisitions are a daily occurrence in the Malaysian corporate sector, it is proposed that the government introduce a statutory framework for amalgamations in the forthcoming amendments to the Companies Act. Two forms of amalgamation procedure are offered that are free from judicial oversight: short-form amalgamation and long-form amalgamation.

The new Code on Takeovers and Mergers 2010 recently came into force, replacing the Code on Takeovers and Mergers 1998. At the same time, pursuant to Section 377 of the Capital Markets and Services Act 2007, the Securities Commission issued practice notes on the new code and Guidelines on Contents of Applications relating to Takeovers and Mergers. The new code introduces a number of salient changes.

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Malta

Malta is considered to be an important jurisdiction for the implementation and financing of buy-outs. Building on its civil law background combined with common law concepts, the legislature has invested significantly in ensuring that parties to a leveraged buy-out attain their respective objectives by making available a plethora of legal instruments specifically designed or adapted for such purposes.

M&A transactions in Malta are regulated largely by the Companies Act and the Civil Code. Maltese companies are in turn primarily regulated by the act and regulations enacted under its auspices, including matters such as cross-border mergers, the public offer of securities and the fundamental prospectus requirements for such public offers. A number of other regulations also apply to M&A transactions in the country.

In M&A deals, although legal and commercial considerations take a central role, structuring the transaction to maximise fiscal opportunities remains key. Malta offers a structural platform that allows for numerous benefits and a degree of flexibility. The use of a Maltese vehicle in cross-border transactions can thus result in significant advantages for both the purchaser and the seller.

Where the target company in an M&A transaction is a Maltese company, the financial assistance rules laid down in the Companies Act must be considered when structuring the financing and security package of such acquisition. Financial assistance rules also regularly come into play in relation to leveraged buy-outs. In principle, financial assistance is prohibited; however, exemptions apply in certain cases.

Mexico

Mandatory tender offers in Mexico are primarily regulated by the Securities Market Law and its corresponding general provisions, applicable to listed companies and other participants in the securities market and issued by the National Banking and Securities Commission. Acquisitions in violation of these provisions will be deemed null and void by law, while violators will face serious consequences.

Mexican tax laws have specific provisions regarding the merger of entities and the acquisition of shares or assets; both of these situations have tax consequences and obligations for both the seller and the buyer. A thorough analysis and due diligence should be carried out in order to ascertain the relevant tax implications of M&A transactions, depending on the characteristics of the entities involved.

When acquiring shares of a company which in turn holds shares of a Mexican company with a Manufacturing, Maquiladora and Exportation Services Industry programme, certain factors should be taken into consideration. Failure to perform a thorough due diligence on respective subsidiaries, especially in light of foreign trade matters, may result in customs implications.

When considering a transaction, a buyer usually would – and should – ask the seller to provide or carry out an environmental site assessment before acquisition of the company in order to identify any possible environmental conditions or risk. However, the seller can also consider ways in which to limit its environmental liability.

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Mozambique

The privatization framework was recently revised in a decisive move to attract more private investment to certain sectors and companies which were previously in state hands. The business community is eagerly awaiting the implementation of the programme and the arrival of foreign players who are willing to avail of the new commercial opportunities.

New Zealand

The government is conducting a review of the Overseas Investment Act 2005, which regulates foreign investment in New Zealand. The review aims to simplify the foreign investment rules making investment in New Zealand simpler and more attractive, while protecting sensitive land, assets and resources.

The Takeovers Panel has published a consultation paper on the implications of the Takeovers Code in relation to upstream takeovers. The panel wishes to adopt a transparent policy on dealing with such takeovers so that it can provide clarity on the applicable rules and certainty to the market.

The Takeovers Panel, which administers and enforces the Takeovers Code, has recommended changes to the law relating to schemes of arrangement and amalgamations under the Companies Act. The code can be circumvented by structuring an acquisition to take advantage of the reconstruction provisions in the act, but the panel is concerned that this may deprive shareholders of significant rights and protections.

A controversial takeover offer by the Canadian Pension Plan Investment Board for a 40% stake in the publicly listed company Auckland International Airport Limited has been rejected. The application failed on the assessment of the 'benefit to New Zealand' criterion. Ministers assessing such acquisitions will look for evidence that applicants can achieve the benefits claimed in their investment plans.

The Overseas Investment Act 2005 and the Overseas Investment Regulations 2005 provide that overseas persons obtain consent before commencing certain business or acquiring certain assets in New Zealand. A new criterion requiring the authorities to consider whether such an investment is likely to assist New Zealand in maintaining control of strategic infrastructure is now facing its first test.

Norway

A report recently prepared for the Department of Justice has suggested amending several of the rules governing private and public limited companies, including the financial assistance regulations. In particular, the report recommends changes to the rules on financial assistance to shareholders, financial assistance in relation to the acquisition of shares and penalties.

The Committee on Markets in Financial Instruments has proposed legislative amendments in order to implement, among other things, the EU Takeover Directive. The committee's proposal mainly involves changes to the provisions on mandatory and voluntary offers for shares set out in Chapter 4 of the Securities Trading Act.

The new Concession Act includes amendments concerning approval with regard to most transactions of shares that were subject to the Business Acquisition Act. It is argued that the need for approval where shares are acquired in a company owning property has been reduced, as the company itself requires a concession when it acquires the property.

The 10% ownership limit on the share capital and voting rights of Norwegian financial institutions has been replaced by a system that allows holdings to exceed this limit if the government consents to the proposed acquisition. It is hoped that relaxing the regime will make such institutions more attractive to investment and takeover bids.

The Financial Institutions Act 1988 forbids any person or company to hold more than 10% of the shares or voting rights in a Norwegian financial institution. On June 30 2003 Parliament passed an act replacing this absolute limit of 10% with a more discretionary system. The amendment may make Norwegian financial institutions more attractive targets for investments and company takeovers.

A recent ruling of the Supreme Court implies that when a company is acquired by way of share purchase, it is the business itself, and not merely the shares, which is the object of the transaction. Further, the court confirmed that the Sale of Goods Act applies to transfers of shares, even though business transfers will often raise special issues.

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Pakistan

The downward trend of Pakistan's securities market and the consequent fall in the value of listed companies' shares provides an opportunity for such companies to buy back their own shares. A change to the Companies Ordinance allows such companies to hold such repurchased shares as treasury shares, whereas they were previously required to cancel them.

The Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance 2002 aims to ensure the fair and equal treatment of all investors, as well as a transparent and efficient system for the substantial acquisition of voting shares and takeovers of listed companies.

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Panama

In Opinion 10-2007 the National Securities Commission issued an administrative position on whether the board of directors of a company which is the subject of a hostile takeover may adopt defensive mechanisms (eg, standstill agreements, golden parachutes, porcupine provisions, white knights, lock-up options and poison pills) to counter the takeover.

The National Securities Commission has issued an administrative opinion relating to the obligation on an issuer registered with the commission to notify it of any offer made through the Panama Stock Exchange to acquire up to 25% of the issuer's outstanding shares.

Recent market practice is for offerors to make agreements with controlling shareholders of target companies prior to formal tender offer announcements. Usually, these agreements take the form of a promise to buy or sell stock in return for irrevocable acceptance of the tender offer. The NSC recently issued its formal administrative opinion as to the validity of such agreements.

This update covers the circumstances in which companies cease to exist, focussing particularly on judicial procedures for voluntary winding up and declarations of bankruptcy.

Paraguay

Law 1615/2000 constitutes the principal legal framework for the privatization of state owned enterprises.

Regarding the legal status and enforceability of security documents and promissory notes, real guarantees are considered to be the most reliable for they create a privileged security interest over the mortgaged or pledged property in the creditor's favour.

Poland

The Polish president recently approved two new pieces of legislation enacted by Parliament which are aimed at incorporating EU Directive 2005/56/EC into Polish national law. Both acts will finally allow for cross-border mergers involving Polish limited liability companies, joint stock companies and joint stock limited partnerships.

The Polish Parliament is working on an amendment to the Commercial Company Code, which involves liberalizing the rules on a joint stock company's acquisition of its own shares. The amendment will introduce exemptions from certain restrictions which so far have thwarted leveraged buy-outs of joint stock companies in Poland.

In October 2005 Brussels responded to strong business demand to enable mergers between companies from different EU member states by passing Directive 2005/56/EC. The directive has remained a paper tiger in Poland to date, thwarted by Polish legal obstacles; however, this looks set to change as draft legislation designed to give it teeth has been put forward.

Cash pooling is an instrument that enables affiliated companies to minimize interest expense by offsetting debit positions on bank accounts of some of the companies participating in the cash pool with credit positions on the bank accounts of others. While popular all over the world, this process is still under-used in Poland due to a lack of clear regulations.

The concept of a warranty is not Polish by origin, and therefore is not automatically recognized by Polish law. The parties to an acquisition agreement must clearly explain how the warranties included in the contract should be construed and, more importantly, must expressly describe the manner in which the warranties will operate in the relationship.

The Supreme Court has ruled on the admissibility of a last-resort appeal against a decision regarding a company merger. The court emphasized that the key question was the legal character of the register entry of the merger, which took place by way of a transfer of all the company's assets to the acquiring company.

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Portugal

In a leveraged buy-out the acquisition is typically financed with debt collateralised (directly or indirectly) by the target's own assets. Although still highly restricted by the Portuguese legal framework's stringent rules on financial assistance, a leveraged buy-out may be structured in such way that there is no direct assistance from the target, thus avoiding the general prohibition rule.

Step-in rights are common contractual arrangements in finance deals, stemming from step-in clauses that grant lenders the right to intervene or 'step in' to ensure that key contracts are completed successfully. If a step-in clause is excessively burdensome for one of the parties, it is challengeable in court on the basis of breach of good faith and public order.

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Romania

The most frequent strategies for handling deadlocks and exits are call and put options. Traditionally, the breach of such conditions triggered the payment of damages by the party in breach; specific performance was available only in limited circumstances. However, damages may be a less desirable solution and a beneficiary may be able to obtain a court order to enforce a call and put option agreement.

Romania's recent economic growth has triggered increased appetite for investment in domestic companies. Most investors seek to leverage their acquisitions and expect to be able to use the target company's assets for this purpose; the scope of the applicable restrictions is open to interpretation.

Romanian law has drawn on reasoning and concepts familiar in common law jurisdictions in increasingly sophisticated mergers and privatizations. However, representations, indemnifications, certain special warranties and liability and its limitation may be interpreted in ways unfamiliar to those outside the Romanian market.

In order to ensure an appropriate, consistent and workable legislative framework for corporate restructuring of companies which are subject to international accounting standards (IAS), the minister of public finances recently issued an IAS-based set of principles to govern the merger and split-off of such companies from an accountancy perspective.

A recent law allows golden shares to be converted into ordinary shares by way of amendment of the original share sale-purchase agreement. However, the buyer of the former golden shares may be obliged to preserve documentation regarding information technology and design, and research projects financed from the state budget, as well as to maintain defence production capacities.

The Romanian Parliament has ruled that majority shareholders which control more than 90% of the voting rights in an enterprise must make a mandatory public offer for its entire floating stock. The obligation will particularly affect major investors which have formed strategic alliances with the government during privatization.

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Serbia and Montenegro

Recent amendments to the Privatization Law are the first significant changes to the law since its enactment in 2001. Among other things, they simplify the privatization procedure, define eligible and ineligible buyers, specify the obligations of the companies undergoing privatization, and set out how the privatization proceeds must be allocated.

The progress of privatization in Serbia remains mixed, with some successes but significant legal obstacles still in place, especially in the high-profile area of public tenders. Sources within the Privatization Agency are discussing possible changes to the Privatization Law which would make the privatization process swifter and more efficient.

Recent amendments to the Federal Republic of Yugoslavia Law on Enterprises have resolved only some of the difficulties which the Serbian Privatization Agency was encountering in its attempts to solve the problem of converting socially owned capital into share capital to be transferred to buyers in the process of privatization.

The Parliament of the Federal Republic of Yugoslavia has enacted a new Foreign Investment Law which in practice will apply only in Serbia. The law sets out a more straightforward procedure for the registration of foreign investments and minimal restrictions on foreign persons becoming majority shareholders in certain companies.

While the initial results of privatization are impressive, the Privatization Law has a critical flaw in its failure to treat effectively the 'socially owned capital' which still dominates enterprise capital ownership in Serbia. Unless these critical ownership and control issues are resolved, the process will be hindered.

Singapore

In response to the increasing number of listed companies proposing to buy businesses or assets for a price based on or including profit guarantees, the Singapore Exchange Limited is considering amendments to its listing rules to provide additional guidance to company boards and their financial advisers.

The Monetary Authority of Singapore recently revised the Code of Takeovers and Mergers following a round of public consultation by the Securities Industry Council. The revised code applies to foreign entities (including business trusts) with a primary listing on the Singapore Stock Exchange and to Singapore-registered business trusts with over 50 unit holders and net tangible assets of at least S$5 million.

Recent amendments to the Singapore Exchange Listing Rules modify the regime governing reverse takeovers and other corporate activity. Meanwhile, the application of Rule 14 of the Singapore Takeover Code to the exercise of warrants or other convertibles presents an interesting scenario for further consideration.

A recent shipping deal is believed to be the largest transportation M&A transaction globally this year, and perhaps the biggest ever M&A transaction between Singaporean and Malaysian entities. Meanwhile, amendments to the Companies Act have relaxed the threshold for compulsory acquisition of outstanding shares.

The Company Legislation and Regulatory Framework Committee's proposal to introduce a more effective and efficient statutory process for effecting solvent mergers and amalgamations is timely. The government has accepted the proposal, but the amendments have not been included in the Companies Amendment Bill which is due to be enacted this year.

A recent amendment to the Stamp Duties Act imposes stamp duty on any disposal of shares carried out by cancelling existing shares and issuing new shares. Its potential impact on mergers is serious, as many recent mergers have proceeded by way of Section 210 schemes of arrangement incorporating a mechanism for the cancellation of existing shares and the reissue of new shares.

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South Africa

South African company law is in the process of being revamped. The new Companies Act introduces a number of important new concepts into South African law which will be relevant for M&A practitioners. Although implementation of the act has been delayed, when it does take effect it will introduce mergers and amalgamations into South African law, making it easier for companies to implement business combinations.

The Companies Amendment Bill, which was published in order to remove errors in the new Companies Act, contains a problematic new provision relating to share buybacks by the company. The provision provides that a decision by the board of a company to acquire its own shares must be approved by special resolution of the shareholders if any shares are to be acquired from a director or prescribed officer of the company.

When the new Companies Act takes effect in late 2010 or early 2011, it will constitute the first general review of South African company law since 1974. Under the existing Companies Act, schemes of arrangement involve a fairly lengthy and onerous process; however, this has been substantially streamlined under the new act.

South African company law is undergoing major transformation. A new Companies Act has been promulgated and will likely become effective during 2010. The new Companies Act will replace the existing Companies Act, which has been in force for over 30 years. The new regulations concern takeovers and, in particular, cash confirmations, which are relevant to public M&A activity.

A second, revised draft of the Companies Bill has recently been published for public comment. The bill seeks to modernize South African company law and to bring it into line with international best practice. This update highlights some of the key areas of company law that directly affect mergers and acquisitions and corporate finance activities in which changes are proposed.

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South Korea

The Supreme Court has issued a landmark decision that will have a major negative impact on the Korean leveraged buy-out market. Overturning a lower court's decision, it held that the defendant had committed an occupational breach of trust under the Criminal Code when he utilized the acquired company's assets as collateral for borrowing to finance a leveraged buy-out transaction.

Spearheaded by the Ministry of Justice, the Korean government is working on comprehensive changes to the Commercial Code. One proposed amendment introduces a freeze-out provision, which will allow a company's largest shareholder to eliminate those minority shareholders which it believes may be troublesome.

The Seoul Southern District Court has rendered a decision prohibiting the exercise by the largest shareholder of voting rights attached to treasury shares purchased from Daelim Trading Co Ltd, holding that the sale of the treasury shares by Daelim was void.

Although leveraged buyouts are one of the most common types of merger and acquisition worldwide, in Korea they are still viewed with scepticism by both the government and the business sector. However, a recent criminal case may have set an important precedent for determining the legality of leveraged buyouts.

The amended Korean Securities and Exchange Act will soon come into force. It expressly requires the filing of a report on the purpose of ownership in addition to the shareholding status where a party becomes the owner of 5% of the shares of a listed corporation. Harsher penalties for breach of the reporting obligations are also imposed.

The Korea Fair Trade Commission has changed its business combination reporting regulations by issuing Notification 2001-11, which requires foreign companies to report certain significant business combinations occurring between foreign companies outside Korea.

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Spain

Venture capital regulation and the role of authorities in the supervision of venture capital entities have changed considerably in recent years. New legislation has relaxed the administrative regime regarding incorporation, creating simplified venture capital entities.

Courts are rarely involved in corporate finance transactions, as final court decisions - even if favourable to the company - are unlikely to be issued in time to make the transaction possible. Moreover, the authorities leave little space for court intervention, as bringing courts into the game is likely to damage the market and be detrimental to the shareholders of target companies.

Law 25/2005, which regulates private equity entities and their management companies, will come into force on December 25 2005. The new law aims to provide Spain with a favourable legal framework to foster the development of the private equity sector, based mainly on two pillars: the improvement of the administrative regime and the relaxation of investment rules.

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Sri Lanka

A shareholder has successfully relied on Sections 210 and 211 of the Companies Act, which are commonly used to protect minority shareholders against oppression and mismanagement, to take over control of a company in which it was the majority shareholder.

The Sri Lankan government which came into power in April 2004 does not intend to privatize strategic public institutions, given that these significantly affect the day-to-day lives of ordinary Sri Lankans. Instead of privatization, the government hopes to improve management and achieve private sector efficiency.

The attorney general recently advised that the mandatory offer provisions in the Takeovers and Mergers Code did not apply to a transaction through which two shareholders each increased their stake to 30%. The attorney general found that the two shareholders acted in concert on ownership and management from the company’s inception, thus ruling out the need to make a mandatory offer.

Sweden

Changes for simplified mergers and demergers, which recently came into force, aim to reduce the administrative burden on companies. The boards of the companies which are involved in the merger must inform their shareholders at a general meeting of any significant changes in relation to the company's assets or liabilities which have occurred after the issuance of the merger plan.

There are clear reasons to take the Public Procurement Act into consideration in connection with M&A transactions. In conjunction with due diligence, it is important for Swedish companies to be especially vigilant when entering into contracts which are subject to the act, or where public contracts exist and the planned transaction risks involving an illegal direct award of contract which violates the act.

How the purchase price should be determined is an integral part of a share purchase agreement. Two different approaches prevail: the closing balance-sheet adjustment and the fixed purchase price or 'locked box' mechanism. Although the closing balance-sheet adjustment may be the most common approach in the current market environment, the locked box mechanism can be the preferred route from the seller's perspective.

Normally, the valuation of a company is based on its past performance and projected future performance. While the seller may be confident of the company's future growth, the buyer may be reluctant to pay the seller the whole purchase price upfront. This problem can sometimes be mitigated by the parties agreeing on the introduction of an earn-out provision into the transaction, thus spreading the risk between the seller and buyer.

The Commerce Stock Exchange Committee's revised rules for public takeover bids on the Swedish stock market have been adopted by NASDAQ OMX Stockholm and NGM Equity. The review of the rules has been undertaken in light of recent developments on the Swedish and international capital markets and a number of high-profile transactions.

The harsher financial market conditions over the last 12 months have had an adverse impact on the way in which deals are carried out, especially in relation to the purchaser's ability to secure financing. The slowdown in M&A activity has resulted in a less competitive market, putting the purchaser in a better position to negotiate favourable agreement terms at the expense of the seller.

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Switzerland

Overview
Including: Significant M&A transactions over the past year; Public takeovers; Recent legislative changes; Impact on transaction planning; Opting out; Further proposed changes.

The Takeover Board previously expanded its practice with regard to the evaluation of the validity of opt-out clauses. In two recent cases, the board had to decide whether opt-out clauses introduced after listing were valid. The board also took this opportunity to reflect on its own practice. These decisions show that board practice is still variable and can be expected to undergo further changes and/or clarifications.

The Swiss legislature has recently passed an amendment to the rules of the Stock Exchange Act. The new rules will, among other things, abolish the possibility for an offerer to pay a control premium to the controlling shareholders of a target company shortly before the launch of a public tender offer.

A new majority shareholder must take minority shareholders' interests into account. An offeror has two legal options to exclude or 'squeeze out' minority shareholders under the Stock Exchanges and Securities Trading Act and the Merger Act. The Supreme Court recently clarified certain questions relating to a squeeze-out merger following a successful public takeover bid, which was challenged under the Merger Act.

It appears that the Takeover Board will no longer review opt-out clauses in instances where the shareholders have been fully informed and made aware of the consequences and implications of the introduction of such clauses. This is rather astonishing, especially since in the last reform of the Securities and Stock Exchange Act, the legislature intended to substantially strengthen the position of minority shareholders.

In the first case in which it has acted as the court of final instance in relation to a public takeover, the Federal Administrative Court recently oversaw a case regarding a high-profile public takeover. In light of the case, offerors would be well advised to use the most simple transaction structures possible in future public takeovers in order to avoid the increasingly costly and time-consuming processes involved with legal challenges from shareholders.

In 2009 the Swiss legislature enacted the Financial Market Supervision Act and made several changes to the Act on Stock Exchanges and Securities Trading relating to public offers. In view of these changes in the legislation, FINMA and the Takeover Board undertook a general overhaul of the FINMA Stock Exchange Ordinance and the Ordinance on Public Takeovers. This update analyses the impact of these changes.

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Taiwan

Japan's Interchange Association and Taiwan's Association of East Asian Relations has executed the Agreement between the Interchange Association and Association of East Asian Relations for the Mutual Cooperation on the Liberalisation, Promotion and Protection of Investment. The agreement includes a number of provisions that will facilitate mutual investment between the countries.

Cross-strait trade relations have steadily improved since the signing of the Economic Cooperation Framework Agreement. Taking the next step in Taiwan's continuing efforts to promote cross-strait industry partnerships and to attract more mainland investors, the Ministry of Economic Affairs recently announced that several new industry categories will be opened to Chinese investment.

In order to further liberalise the regulatory framework for M&A activities, the Ministry of Economic Affairs plans to propose certain amendments to the Mergers and Acquisitions Act. The proposed amendments cover consideration in spin-offs, amortisation of intangible assets and tax exemption.

Turkey

Due to the remarkable rate of development in the Turkish markets over the past 30 years, investors that wish to share their risks, costs, responsibilities and liabilities prefer to form joint venture partnerships in relation to their investments in Turkey. Unless otherwise agreed in the joint venture agreement, each partner's share in its losses and profit are equal and it is directly, unlimitedly and severally liable against its creditors.

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Ukraine

A streamlined approach to official approvals could raise €2 billion in direct investment in 2012. InvestUkraine, a special division of the State Agency for Investment and National Projects, is already providing services to investors – including arranging informational, analytical and legal services – and providing support through contacts with local state authorities.

A new law provides that a legal entity or individual must obtain written consent from the National Securities and Stock Market Commission for plans to acquire a significant share of the equity in a financial institution or to increase such a share, directly or indirectly, so as to hold or control 10%, 25%, 50% or 75% of the authorised charter capital of the institution.

A draft law proposes to raise the standards of preparation in investment projects in Ukraine. Its provisions would make it easier for investors to obtain a package of authorisation documents for project implementation. Authorised bodies would act as regional centres for investment, assisting in the preparation and implementation of projects at a local level.

The Draft Law on Amendments to the Law on Joint Stock Companies, which seeks to improve the mechanisms for joint stock company operations, has been approved. Among other things, a new article on share buy-outs by an owner of 95% of a company's shares would give that person (or persons acting jointly) the right to require all shareholders to sell their ordinary shares.

The president has announced a programme of economic reform which includes the privatization of Ukraine's regional power grid companies. Two of the country's most influential industrialists already own shares in some of the companies and may be targeting further investments. However, stakeholders and would-be investors are awaiting a decision from the cabinet of ministers on the terms of the sale.

Parliament has abolished the mandatory registration of foreign investments and lifted a ban on the early repayment of cross-border credits and loans; these measures, which were intended to protect Ukraine during the financial crisis, have proved a serious obstacle to foreign investors. The amendments show that in the field of foreign investment regulations, the rules can be changed in the course of the game.

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United Arab Emirates

Pursuant to an amending law, a company may purchase up to 10% of its own shares for the purpose of resale where the market value of the shares is relative to their book value. However, certain conditions apply.

United Kingdom

The Takeover Panel has published its annual report for the year ended March 31 2003. The report summarizes the current status of the proposed Takeover Directive and comments on a number of code-related issues, including a general reminder emphasizing the importance of consulting with the Executive.

In a recent case involving alleged financial assistance the court held that no unlawful assistance was given, as the target did not give financial assistance “for the purpose of” reducing or discharging a liability incurred in acquiring its own shares. The Court of Appeal confirmed, but for different reasons.

The Takeover Code was recently amended to clarify that an offeree company cannot publish any material new information after the 39th day from the posting of the offer document. A further amendment permits the Takeover Panel to grant an extension to Day 46 (the last day the offer can be revised) or Day 60 (the last day an offer can become unconditional as to acceptances).

A recent Court of Appeal decision has caused some consternation, as it develops points of broad application which may impact on practice in the area of financial assistance. Section 151 of the Companies Act should be reviewed in the light of the judgment where financial assistance is considered in the course of an M&A transaction.

The information commissioner has issued guidance on how to comply with the requirements of the Data Protection Act 1998 when conducting due diligence and/or running a data room. The majority of personal data in a data room will relate to the employees of the company being purchased and the key requirement is that, wherever practicable, this information should be anonymized.

The new regulatory framework for the media and communications industries, which the government set out in its recent Communications Bill, has significant implications for M&A transactions. Press attention has focused on the changes to the media ownership rules and the possible deals that may now happen.

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USA

Two years ago, M&A representations ('reps') and warranties insurance was not a major issue for private equity sponsors and M&A lawyers. This is no longer the case: reps and warranties insurance has become an important tool to win bids and close deals in today's challenging environment.

In 2012 private equity deal volume was flat compared with 2011. New funds continued to be raised at a modest pace and there were no particularly interesting new developments in the deal market. However, despite the challenges facing the industry and the harsh spotlight put on it by the presidential campaign, private equity continued to thrive - and is expected to continue to do so in 2013.

A recent decision by the Delaware Supreme Court serves as a reminder to buyers and sellers of the important role that non-disclosure agreements can play in fixing the limits of potential liability for sellers during the pre-contracting, diligence phase of a transaction. In drafting disclaimers of reliance in non-disclosure agreements, sellers of businesses should insist on broad disclaimers of reliance and waivers of claims.

A recent Delaware Chancery Court case serves as a reminder to parties negotiating non-disclosure agreements and their legal counsel about the importance of non-disclosure agreements to the M&A process and how such agreements may prohibit a party receiving confidential information from engaging in a hostile transaction, even if an explicit standstill provision is not included.

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Venezuela

A resolution of the Venezuelan Securities Commission sets a precedent for the procedure to be followed by a controlling shareholder of a public company that is involved in a repurchase plan.

A recent decision of the Venezuelan Securities Commission is noteworthy in that when a controlling shareholder wishes to increase its equity in the controlled company, it must make a tender offer for at least 75% of the company's capital stock.

Including: Definitions; Procedures; Fiduciary Duties; Competing Offers; Higher Bids; Withdrawal of an Offer; Acceptance and Revocation; Proration; Notice of Offer Results; Settlement

Venezuela's securities regulator has enacted new regulations on public tender offers, broadening the scope of previous rules. The new regulations pertain to tender offers for shares and other rights, as well as takeovers of public companies.