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04 June 2003
The basic principle governing any type of acquisition is that of freedom of contract. The seller and the purchaser may freely agree, within the limits established by law, on a purchase agreement which sets out the specific terms of the transaction, including representations and warranties.
The transfer of shares of public companies does not require a deed. The share transfer is effected by means of a sale and purchase agreement and, depending on the type of shares involved, requires completion of the following formalities:
Shares in public companies are freely transferable, unless otherwise provided in the articles of association. The articles of association may set forth pre-emption rights, a provision requiring the company's consent to the transfer and other specific restrictions, as long as these are in accordance with the company's best interests.
The transfer of stakeholdings in private companies must be executed by means of a public deed and is subject to commercial registration with the competent commercial registry office. Such transfers require the company's prior consent, with the exception of transfers to spouses, parents, descendents or other shareholders. The articles of association may set forth pre-emption rights and, within the limits of the law, establish other limits to the transfer of stakeholdings.
The acquisition of a listed company in Portugal is achieved by means of a takeover offer. Takeovers are essentially governed by the Securities Code, notably by Articles 173 to 197. The introduction of the Securities Code created some uncertainty in several areas, which has since been clarified by multiple regulations issued by the Securities Market Commission over the last three years.
The Securities Code establishes the concept of a public open company (sociedade aberta), and imposes rules which reinforce the transparency of its control and direction, in particular information obligations in relation to qualified shareholdings and shareholders agreements. The code is intended to protect the investor by imposing on any agent acting in the market a duty to supply complete, true, clear and lawful information with respect to securities, public offers, security markets, financial intermediation activities and anything else that may affect an investment decision.
Whenever a financial institution has an advisory or other role in relation to a takeover, general secrecy duties enshrined in the Securities Code are applicable, because of its access to non-public information. These obligations are specifically emphasized in the period before the preliminary announcement, when all information regarding the takeover is considered to be confidential (Article 174).
The main principles governing takeovers are as follows:
The statutory framework for takeovers and mergers is legally binding, in order to ensure the protection of small investors.
The takeover procedure involves the following steps:
From publication of the preliminary report to assessment of results, the bidder must inform the Securities Market Commission on a daily basis of its transactions in securities issued by the target, and those involving securities offered by the bidder.
Additionally, the bidder cannot sell the securities outside the relevant exchange without the prior authorization of the Securities Market Commission.
The specific securities included in the offer are subject to a blocking mechanism, which means that they cannot be traded. Moreover, the powers of the target company are restricted. Therefore, the directors of the company may not perform any act that might affect its financial situation in such a way as would frustrate the bidder's objective.
Significant changes were introduced to the rules governing mandatory takeovers when the Securities Code entered in force. A mandatory takeover offer for the remaining share capital and convertible securities of a public company must be made if an acquisition exceeds certain thresholds stipulated by law. These thresholds are one-third or one-half of the voting rights of the public company.
The minimum price to be offered in a takeover should be the highest of (i) the maximum price paid by the purchaser in the last six months, and (ii) the average weighted price during the last six months in regulated markets. Where the one-third threshold is reached, the bidder will not be required to launch an offer if it can prove that it has not acquired a controlling influence over the company and does not have a group relationship with the company.
The mandatory takeover regime may be derogated from only in the following circumstances:
The rules on mergers are set out in the Portuguese Companies Code. They allow vertical (ie, the merger of a parent company with one or more subsidiaries) and horizontal mergers, as well as the merger of different types of companies (eg, the merger of a public company with a private company). The rules apply to both public and private limited companies.
Portuguese law distinguishes between two types of mergers: (i) incorporation, whereby a company is dissolved through the global transfer of all its assets, contracts, rights and liabilities to another company (with the shareholders of the company which is dissolved receiving shares in the surviving company); and (ii) simple merger, whereby two or more companies merge to create a new company (with the shareholders of both companies receiving shares in the new company).
Consideration can be paid to the shareholders of the dissolved company in the form of shares in the surviving company or a combination of shares and cash, provided that the cash consideration does not exceed 10% of the nominal value of the consideration.
The most important document in a merger transaction is the merger plan. This is a document prepared jointly by the boards of directors of the participating companies. Its contents must comply with requirements extensively detailed by law. The merger plan must indicate the criteria used to evaluate the companies, as well as the share exchange ratio (ie, the number of shares in the surviving company to be paid for each share in the discontinuing company).
Each participant must submit the merger plan for the approval of its supervisory board and for examination by an independent chartered accountant. Once the merger plan has been registered with the competent commercial registry office, the shareholders meetings of the participating companies are summoned to decide on the merger. For public companies, a majority of two-thirds of the votes cast is needed to approve the merger plan. For private companies, a majority of three-quarters of the share capital is needed, unless the articles of association stipulate a higher majority.
Once the shareholders resolution approving the merger plan has been registered, creditors of the participants may oppose the merger on the grounds that the transaction will adversely affect their credit. The merger process is concluded with the issue of the merger public deed and the final registration of the merger. As from the final registration of the merger:
Portuguese law distinguishes between three types of divisions:
In order to effect a simple division, the net asset value of the company which is broken up cannot be less than the sum of the share capital and legal reserve, except if prior to the division or simultaneously to it there is a corresponding reduction in the share capital. The company's share capital must also be paid-up in full.
In the case of simple division the only assets which can be separated to incorporate a new company are (i) shareholdings in other companies, including holding companies, and (ii) groups of assets which form an economic unit.
As consideration for the division, the shareholders of the divided company will receive shares of the transferee company or a combination of shares and cash, provided that the cash consideration does not exceed 10% of the nominal value of the consideration.
The most important document in a division transaction is the division plan. The division procedure is quite similar to the merger procedure, and can be summarized as follows:
The divided company is jointly and severally liable for the debts transferred to the new company (or to the existing companies in case of a merger division). The transferee companies are severally liable, up to the value of the transferred assets, for debts of the divided company which existed before the registration of the division.
The Portuguese government is committed to creating a more competitive and market-oriented
merger framework. To this end, it is taking steps to reduce the tax costs in M&A transactions, and in the privatization procedure.
For further information on this topic please contact Manuel Magalhães at Goncalves Pereira, Castelo Branco e Associados by telephone (+351 21 355 3800) or by fax (+351 21 353 2362) or by email (firstname.lastname@example.org).
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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