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Appendix 1
ABOUT THE AUTHORS
THOMAS SACHERAshurst LLPThomas Sacher is a partner at Ashurst LLP since 1 July 2015. From 1986 through June 2015 Thomas Sacher was a member and, from 1992 through June 2015, partner of another German law firm. He studied law at the universities of Munich and Regensburg and received admission to the Bar in 1986. In 1990 he received a PhD (Dr jur) from the University of Regensburg.
Dr Sacher specialises in the areas of M&A, private equity and venture capital. He advises his national and international clients in a variety of corporate law matters related to domestic and cross-border transactions and provides legal advice on transformations, mergers, formation of joint ventures, stock option plans and other corporate transactions.
ASHURST LLPLudwigstraße 880539 MunichGermanyTel: +49 89 24 44 21 100Fax: +49 89 24 44 21 [email protected]
The Mergers & Acquisitions
Review
Law Business Research
Ninth Edition
Editor
Mark Zerdin
The Mergers & Acquisitions Review
The Mergers & Acquisitions ReviewReproduced with permission from Law Business Research Ltd.
This article was first published in The Mergers & Acquisitions Review - Edition 9(published in August 2015 – editor Mark Zerdin)
For further information please [email protected]
The Mergers & Acquisitions
Review
Ninth Edition
EditorMark Zerdin
Law Business Research Ltd
PUBLISHER Gideon Roberton
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THE MERGERS AND ACQUISITIONS REVIEW
THE RESTRUCTURING REVIEW
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THE TECHNOLOGY, MEDIA AND TELECOMMUNICATIONS REVIEW
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THE CORPORATE IMMIGRATION REVIEW
THE INTERNATIONAL INVESTIGATIONS REVIEW
THE PROJECTS AND CONSTRUCTION REVIEW
THE INTERNATIONAL CAPITAL MARKETS REVIEW
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THE PRIVATE EQUITY REVIEW
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www.TheLawReviews.co.uk
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THE LENDING AND SECURED FINANCE REVIEW
i
The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:
ACKNOWLEDGEMENTS
AABØ-EVENSEN & CO ADVOKATFIRMA
ÆLEX
AGUILAR CASTILLO LOVE
AKD NV
ALLEN & GLEDHILL LLP
ANDERSON MŌRI & TOMOTSUNE
ARIAS, FÁBREGA & FÁBREGA
ASHURST LLP
AZMI & ASSOCIATES
BHARUCHA & PARTNERS
BOWMAN GILFILLAN
BREDIN PRAT
BRIGARD & URRUTIA
CLEARY GOTTLIEB STEEN & HAMILTON
CORRS CHAMBERS WESTGARTH
COULSON HARNEY
CRAVATH, SWAINE & MOORE LLP
Acknowledgements
ii
DELFINO E ASSOCIATI WILLKIE FARR & GALLAGHER LLP
DITTMAR & INDRENIUS
DRYLLERAKIS & ASSOCIATES
ELLEX
FENXUN PARTNERS
HARNEYS
HENGELER MUELLER
HEUKING KÜHN LÜER WOJTEK
ISOLAS
KBH KAANUUN
KEMPHOOGSTAD, S.R.O.
KIM & CHANG
KINSTELLAR, S.R.O., ADVOKÁTNÍ KANCELÁŘ
KLART SZABÓ LEGAL LAW FIRM
LEGAL ATTORNEYS & COUNSELORS
LETT LAW FIRM P/S
MAKES & PARTNERS LAW FIRM
MATTOS FILHO, VEIGA FILHO, MARREY JR E QUIROGA ADVOGADOS
MNKS
MORAVČEVIĆ VOJNOVIĆ I PARTNERI IN COOPERATION WITH SCHÖNHERR
MOTIEKA & AUDZEVIČIUS
NISHIMURA & ASAHI
OSLER, HOSKIN & HARCOURT LLP
Acknowledgements
iii
PÉREZ BUSTAMANTE & PONCE
POPOVICI NIȚU & ASOCIAȚII
ROJS, PELJHAN, PRELESNIK & PARTNERS
RUBIO LEGUÍA NORMAND
RUSSIN, VECCHI & HEREDIA BONETTI
S HOROWITZ & CO
SCHELLENBERG WITTMER LTD
SCHINDLER RECHTSANWÄLTE GMBH
SELVAM & PARTNERS
SEYFARTH SHAW LLP
SLAUGHTER AND MAY
STRELIA
SYCIP SALAZAR HERNANDEZ & GATMAITAN
TORRES, PLAZ & ARAUJO
URÍA MENÉNDEZ
UTEEM CHAMBERS
VON WOBESER Y SIERRA, SC
WEERAWONG, CHINNAVAT & PEANGPANOR LTD
WH PARTNERS
WILSON SONSINI GOODRICH & ROSATI
v
Editor’s Preface .................................................................................................xiii Mark Zerdin
Chapter 1 EU OVERVIEW .........................................................................1 Mark Zerdin
Chapter 2 EU COMPETITION OVERVIEW ..........................................11 Götz Drauz and Michael Rosenthal
Chapter 3 EUROPEAN PRIVATE EQUITY .............................................19 Thomas Sacher
Chapter 4 US ANTITRUST ......................................................................32Scott A Sher, Christopher A Williams and Bradley T Tennis
Chapter 5 CROSS-BORDER EMPLOYMENT ASPECTS OF INTERNATIONAL M&A .......................................................53
Marjorie Culver, Darren Gardner, Ming Henderson, Dominic Hodson and Peter Talibart
Chapter 6 M&A LITIGATION .................................................................67Mitchell A Lowenthal, Roger A Cooper and Matthew Gurgel
Chapter 7 AUSTRALIA .............................................................................74Braddon Jolley, Sandy Mak and Jaclyn Riley-Smith
Chapter 8 AUSTRIA ..................................................................................87Clemens Philipp Schindler
Chapter 9 BAHRAIN ................................................................................97Haifa Khunji and Natalia Kumar
CONTENTS
vi
Contents
Chapter 10 BELGIUM ..............................................................................110Olivier Clevenbergh, Gisèle Rosselle and Carl-Philip de Villegas
Chapter 11 BRAZIL...................................................................................122Moacir Zilbovicius and Rodrigo Ferreira Figueiredo
Chapter 12 BRITISH VIRGIN ISLANDS ................................................132Jacqueline Daley-Aspinall and Sarah Lou Rockhead
Chapter 13 CANADA ................................................................................143Robert Yalden, Emmanuel Pressman and Jeremy Fraiberg
Chapter 14 CAYMAN ISLANDS ..............................................................158Marco Martins
Chapter 15 CHINA ...................................................................................173Lu Yurui and Ling Qian
Chapter 16 COLOMBIA ...........................................................................187Sergio Michelsen Jaramillo
Chapter 17 COSTA RICA .........................................................................203John Aguilar Jr and Alvaro Quesada
Chapter 18 CYPRUS .................................................................................211Nancy Ch Erotocritou
Chapter 19 CZECH REPUBLIC ...............................................................218Lukáš Ševčík, Jitka Logesová and Bohdana Pražská
Chapter 20 DENMARK ............................................................................225Sebastian Ingversen and Nicholas Lerche-Gredal
Chapter 21 DOMINICAN REPUBLIC ....................................................236María Esther Fernández A de Pou, Mónica Villafaña Aquino and Laura Fernández-Peix Perez
vii
Contents
Chapter 22 ECUADOR .............................................................................246Diego Pérez-Ordóñez
Chapter 23 ESTONIA ...............................................................................257Sven Papp and Sven Böttcher
Chapter 24 FINLAND...............................................................................269Jan Ollila, Wilhelm Eklund and Jasper Kuhlefelt
Chapter 25 FRANCE .................................................................................281Didier Martin and Hubert Zhang
Chapter 26 GERMANY .............................................................................296Heinrich Knepper
Chapter 27 GIBRALTAR ...........................................................................309Steven Caetano
Chapter 28 GREECE .................................................................................321Cleomenis G Yannikas, Sophia K Grigoriadou and Vassilis S Constantinidis
Chapter 29 HONG KONG .......................................................................334Jason Webber
Chapter 30 HUNGARY .............................................................................344Levente Szabó and Klaudia Ruppl
Chapter 31 ICELAND ...............................................................................360Hans Henning Hoff
Chapter 32 INDIA .....................................................................................368Justin Bharucha
Chapter 33 INDONESIA ..........................................................................386Yozua Makes
Contents
viii
Chapter 34 ISRAEL ...................................................................................400Clifford Davis and Keith Shaw
Chapter 35 ITALY ......................................................................................410Maurizio Delfino
Chapter 36 JAPAN .....................................................................................422Hiroki Kodate and Masami Murano
Chapter 37 KENYA ...................................................................................431Joyce Karanja-Ng’ang’a, Wathingira Muthang’ato and Felicia Solomon Nyale
Chapter 38 KOREA ...................................................................................442Jong Koo Park, Bo Yong Ahn, Sung Uk Park and Young Min Lee
Chapter 39 LITHUANIA ..........................................................................457Giedrius Kolesnikovas and Michail Parchimovič
Chapter 40 LUXEMBOURG ....................................................................465Marie-Béatrice Noble, Raquel Guevara, Stéphanie Antoine
Chapter 41 MALAYSIA .............................................................................479Rosinah Mohd Salleh and Norhisham Abd Bahrin
Chapter 42 MALTA ...................................................................................491James Scicluna
Chapter 43 MAURITIUS ..........................................................................503Muhammad Reza Cassam Uteem and Basheema Farreedun
Chapter 44 MEXICO ................................................................................513Luis Burgueño and Andrés Nieto
Chapter 45 MONTENEGRO ...................................................................523Slaven Moravčević and Dijana Grujić
Contents
ix
Chapter 46 MYANMAR ............................................................................533Krishna Ramachandra and Benjamin Kheng
Chapter 47 NETHERLANDS ...................................................................544Carlos Pita Cao and François Koppenol
Chapter 48 NIGERIA ................................................................................557Lawrence Fubara Anga
Chapter 49 NORWAY ...............................................................................562Ole K Aabø-Evensen
Chapter 50 PANAMA ................................................................................600Andrés N Rubinoff
Chapter 51 PERU ......................................................................................611Emil Ruppert
Chapter 52 PHILIPPINES .........................................................................621Rafael A Morales, Philbert E Varona, Hiyasmin H Lapitan and Patricia A Madarang
Chapter 53 PORTUGAL ...........................................................................630Francisco Brito e Abreu and Joana Torres Ereio
Chapter 54 ROMANIA .............................................................................643Andreea Hulub, Ana-Maria Mihai and Vlad Ambrozie
Chapter 55 RUSSIA ...................................................................................657Scott Senecal, Yulia Solomakhina, Polina Tulupova, Yury Babichev and Alexander Mandzhiev
Chapter 56 SERBIA ...................................................................................675Matija Vojnović and Luka Lopičić
Chapter 57 SINGAPORE ..........................................................................685Lim Mei and Lee Kee Yeng
Contents
x
Chapter 58 SLOVENIA .............................................................................694David Premelč, Bojan Šporar and Mateja Ščuka
Chapter 59 SOUTH AFRICA ...................................................................705Ezra Davids and Ashleigh Hale
Chapter 60 SPAIN .....................................................................................716Christian Hoedl and Javier Ruiz-Cámara
Chapter 61 SWITZERLAND ....................................................................732Lorenzo Olgiati, Martin Weber, Jean Jacques Ah Choon, Harun Can and David Mamane
Chapter 62 THAILAND ...........................................................................745Pakdee Paknara and Pattraporn Poovasathien
Chapter 63 TURKEY .................................................................................753Emre Akın Sait
Chapter 64 UNITED ARAB EMIRATES..................................................762DK Singh and Stincy Mary Joseph
Chapter 65 UNITED KINGDOM ...........................................................774Mark Zerdin
Chapter 66 UNITED STATES ..................................................................793Richard Hall and Mark Greene
Chapter 67 VENEZUELA .........................................................................834Guillermo de la Rosa, Juan D Alfonzo, Nelson Borjas E, Pedro Durán A and Maritza Quintero M
Chapter 68 VIETNAM ..............................................................................847Hikaru Oguchi, Taro Hirosawa, Ha Hoang Loc
Contents
xi
Appendix 1 ABOUT THE AUTHORS .....................................................857
Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS .....905
xiii
EDITOR’S PREFACE
By a number of measures, it could be argued that it has been some time since the outlook for the M&A market looked healthier. The past year has seen a boom in deal making, with many markets seeing post-crisis peaks and some recording all-time highs. Looking behind the headline figures, however, a number of factors suggest deal making may not continue to grow as rapidly as it has done recently.
One key driver affecting global figures is the widely expected rise of US interest rates. Cheap debt has played a significant part in the surge of US deal making in the first few months of 2015, and the prospects of a rate rise may have some dampening effects. However, the most recent indications from the Federal Reserve have suggested that any rise will be gradual and some market participants have pushed back predictions for the first rate rise to December 2015. Meanwhile, eurozone and UK interest rates look likely to remain low for some time further.
The eurozone returned to the headlines in June as the prospect of a Greek exit looked increasingly real. Even assuming Greece remains in the euro (as now seems likely), the crisis has severely damaged the relationship between Greece and its creditors. The brinksmanship exhibited by all parties means that meaningful progress cannot occur except at the conclusion of a crisis: the idea that reform will benefit Greece has been lost and each measure extracted by creditors is couched as a concession. However, while the political debate has become ever more fractious, the market’s response to the crisis has been relatively sanguine. This is largely a result of the fact that the volume of Greek debt is no longer in the market, but in the hands of institutions. But it is also a sign of the general market recovery and expectations that major economies will continue to grow.
Perhaps one of the more interesting emerging trends in the last year is the interplay between growth and productivity. Some commentators have suggested that the recent rise in deal making is a symptom of a climate in which businesses remain reluctant to invest in capital and productivity. Pessimistic about the opportunities for organic growth, companies instead seek to grow profits through cost savings on mergers. It is difficult to generalise about such matters: inevitably, deal drivers will vary from industry to industry, from market to market. However, if synergies have been the principal motivation in
Editor’s Preface
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much of the year’s deal making (it certainly has been in a number of large-cap deals) then it may be that the market is a little farther from sustainable growth than some would like to think.
I would like to thank the contributors for their support in producing the ninth edition of The Mergers & Acquisitions Review. I hope that the commentary in the following chapters will provide a richer understanding of the shape of the global markets, together with the challenges and opportunities facing market participants.
Mark ZerdinSlaughter and MayLondonAugust 2015
491
Chapter 42
MALTA
James Scicluna1
I OVERVIEW OF M&A ACTIVITY
In comparison with its size (316 km2 with a population of 425,384), M&A activity involving Maltese assets, buyers and sellers is by no means insignificant. Apart from an increasingly healthy M&A market there has also been a noticeable increase in the listing of shares of Maltese public companies on exchanges outside of Malta.
Malta continues to gain momentum as a centre for doing business for persons seeking an efficient entry point to Europe, for holding structures to hold assets globally and for businesses engaged in activities such as payment processing, electronic money issuing, gaming, gambling, insurance, aviation and yachting. Sensible regulators with in-depth knowledge of the industries they are responsible for and a willingness to engage with the businesses they regulate, sound regulation and a reasonable fiscal environment have significantly contributed to Malta showing remarkable resilience in the face of the global financial crisis.
As at June 2014 foreign direct investment (FDI) in Malta was estimated by Malta’s National Statistics Office at €136.8 billion with 97.9 per cent being attributable to the financial and insurance activities. In May 2015 the European Commission (the Commission) reported that Malta’s real gross domestic product (GDP) growth reached 4 per cent year on year in the last quarter of 2014 and that it is projected to average 3.6 per cent in 2015. The Commission also commented that ‘job creation and the unemployment rate are projected to outperform euro-area peers’ in 2015. It is in this context that M&A activity has significantly picked up over less than a decade, progressing from a situation where M&A activity was minimal, to one which reflects the buoyant state of the Maltese economy, in particular that of the services sector.
1 James Scicluna is a partner at WH Partners.
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Most M&A activity goes unreported where it relates to private companies, but an insight to the extent of M&A activity can be had through the Malta Financial Services Authority’s (MFSA) report that 191 company mergers were carried out in 2014, a decline of 9 per cent from the previous year.2 By comparison the MFSA reported 135 mergers in 2012 and 210 mergers in 2013 respectively.
The transactions involving Maltese companies, buyers or sellers that probably receive the most press coverage are those relating to the remote gaming industry and banking. However, in the past 12 months, the acquisition by Shanghai Electric, a Chinese state-owned company, of a 33 per cent stake in Enemalta, Malta’s state-owned electricity generation and distribution corporation, has drawn a lot of media attention due to the politically sensitive nature of the topic.
II THE LEGAL FRAMEWORK FOR M&A
There is an important interplay between a number of key pieces of local legislation that an M&A practitioner must keep in mind when advising on a transaction under Maltese law, some of which have been shaped by European Union law, others that are centuries old. In addition, some laws are more ‘civil law’ in nature, while others borrow heavily from statutes of common law jurisdictions, principally those of England and Wales, and statutes that are the result of the local transposition of European Union law.
The Civil Code3 governs the law of obligations, including the rules for the validity of contracts, rules on suspensive and resolutive conditions and joint and several liability, as well as specific contracts such as the contracts of sale and deposit. Most rules set out in the Civil Code have their origin in Roman law as developed locally, in France and Italy over the centuries and are often still very much in line with the Napoleonic Code.
The Companies Act4 is the lex specialis, which inter alia governs the formation and functioning of companies, their merger, dissolution and winding up and the taking of security over their shares. Together with the subsidiary legislation made under it, it is the piece of legislation most frequently referred to by Maltese M&A practitioners. When it comes to subsidiary legislation made under the Companies Act, the Companies Act (Prospectus) Regulations5 and the Cross-Border Mergers of Limited Liability Companies Regulations6 are probably the regulations most often referred to in a transactional context. The latter transposes almost word for word Directive 2005/56/EC.7
The Commercial Code governs several basic acts of trade such as agency and brokerage and is often indispensable when considering the business of the target asset and, at times, deal-specific terms. Most importantly, it also contains rules on the perfection of commercial contracts.
2 Malta Financial Services Authority, Annual Report, 2014.3 Chapter 16,Laws of Malta4 Chapter 386, Laws of Malta 5 S.L. 386.116 S.L. 386.127 Directive 2005/56/EC of the European Parliament and of the Council, 26 October 2005
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Transactions involving public companies whose shares are traded on the Malta Stock Exchange are subject, apart from the Companies Act (The Prospectus) Regulations, to the Listing Rules published by the MFSA in its capacity as the Maltese Listing Authority.
Several other pieces of subsidiary legislation made under the Companies Act deal with specific types of companies and depending on the area being dealt with may need to be referred to by an M&A practitioner, for example, the Companies Act (SICAV Incorporated Cell Companies) Regulations8 and the Companies Act (Recognised Incorporated Cell Companies) Regulations9 contain the rules governing, respectively the formation of, continuation as or transformation of an investment company with variable share capital (SICAV) and limited liability company into an incorporated cell company.
M&A activity in particular industries such as gaming and gambling and financial services is also in large part dependant on regulatory clearance required to be obtained under other statutes or regulations. This is the case with the transfer of entities licensed under the Lotteries and Other Games Act,10 Investment Services Act,11 the Banking Act12 and the Insurance Business Act.13
The merger of UCITS (undertakings for collective investment in transferable securities) is harmonised under the EU’s UCITS Directive14 and transposed into Maltese legislation via the Investment Services Act (UCITS Merger) Regulations,15 so when dealing with the merger of UCITS it is these regulations that set out the specific and more cumbersome rules to be followed.
Other statutes and regulations which play a key role in the structuring and progress of a transaction are the Competition Act16 and the Control of Concentrations Regulations,17 the Employment and Industrial Relations Act,18 the Transfer of Business (Protection of Employment) Regulations19 and the Employee Involvement (Cross-Border Mergers of Limited Liability Companies) Regulations,20 the Prevention of Financial Markets Abuse Act21 and last but not least tax legislation, most notably the Income Tax Act22 and the Mergers, Divisions, Transfer of Assets and Exchange of Shares Regulations
8 S.L. 386.14.9 S.L. 386.15.10 Chapter 438, Laws of Malta.11 Chapter 370, Laws of Malta.12 Chapter 371, Laws of Malta.13 Chapter 403, Laws of Malta.14 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009.15 S.L. 370.19.16 Chapter 379, Laws of Malta.17 S.L. 379.08.18 Chapter 452, Laws of Malta.19 S.L. 452.85.20 S.L. 452.103.21 Chapter 476, Laws of Malta.22 Chapter 123, Laws of Malta.
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made under it, as well as the Duty on Documents and Transfers Act.23 Some of these are dealt with in more detail below.
Malta’s double tax treaties, all 70 plus of them currently in force, also very often play an important part in the structuring of an M&A transaction.
III DEVELOPMENTS IN CORPORATE AND TAKEOVER LAW AND THEIR IMPACT
There have been a number of recent changes to Maltese company law that are intended to make Malta more attractive as a financial centre in Europe and some of which are the result of the transposition of EU law. Below we give only a high level overview of some of the principal changes. Other than the UCITS Merger Regulations there have been no changes to the law governing M&A.
i UCITS Merger Regulations
There have been no significant changes over the past couple of years to the law on the merger or amalgamation of companies other than the better transposition of the UCITS Directive. The UCITS Directive was amended by Directive 2014/91/EU24 and amendments to the Investment Services Act (UCITS Merger) Regulations were published in the Government Gazette on 19 September 201425 and immediately came into force with a view to the better transposition of the amended UCITS Directive on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) in relation to cross-border mergers of UCITS. UCITS involved in a merger are required to adhere to specific standards of disclosure and notification rather than the ‘standard’ procedure provided for under the Companies Act or under the Cross-Border Mergers of Limited Liability Companies Regulations. This is a process that the UCITS Directive has harmonised across the EU with the intention of facilitating, if not simplifying, the organisation or reorganisation of UCITS in Europe.
ii Limited liability partnership – with or without shares
An important change to company law was made through the adoption of Legal Notice 478 of 2014 (LN 478/2014) relating to limited liability partnerships (LLP). The basic provisions regulating limited liability partnerships have not significantly changed over the years, but just over a decade ago specific regulations were adopted allowing the use of this type of partnership for collective investment schemes. As LLP structure grew in popularity with fund managers further changes to the law were made first through Act XX of 2013 and more recently through LN 478/2014. A key feature introduced through this regulation is the ability for an LLP’s capital to be divided into shares, or not. In this type of structure a general partner is responsible for the management of the LLP while
23 Chapter 364, Laws of Malta.24 Directive 2014/91/EU of the European Parliament and of the Council of 23 July 2014.25 Gazette No. 19.311 of 19 September 2014, L.N. 333 of 2014.
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a limited partner contributes to its capital but is not involved in management with the former being jointly and severally unlimitedly liable between them for the LLP’s debts and the latter being liable only to the extent of the unpaid contribution to the LLP of each of them.
iii Protected and incorporated cell companies
Malta is the only full EU Member State that has regulated and offers the possibility to incorporate protected and incorporated cell companies. This type of entity is often used in the insurance and fund sector. Legal notice 411 of 2014 extended this concept to allow the incorporation of protected cell companies for the purpose of entering into securitisation vehicle or to assume risks as a reinsurance special purpose vehicle.26 This type of company is being referred to as a securitisation cell company (SCC) and is intended to cater for multiple securitisation transactions or insurance-linked securities while the liability of each cell within the company remains separate from that of the other cells and of the company itself as a whole.
iv Listing Rules
The Listing Rules were last amended in April 2014 but the changes had no effect on the rules governing takeovers.
IV FOREIGN INVOLVEMENT IN M&A & SIGNIFICANT M&A TRANSACTIONS
The majority of deals by volume and value see foreign involvement in some way, whether on the buy or sell side. Often the target business has been structured through Maltese entities due the favourable local business environment. Other times, Maltese structures are used as acquisition SPVs and in this sense several acquisitions have been made by Maltese companies over the past years. There is healthy local M&A activity in the area of corporate services and more recently software development, but more often than not these deals are not publicised.
The most significant deal by value over the past year has probably been that of the acquisition by Shanghai Electric of a 33 per cent stake in Enemalta reportedly for €100 million and a 90 per cent stake in the only currently active local power plant for €150 million. Under the terms of this transaction Shanghai Electric will also cover the conversion of the current power generation plant from oil to gas.
This is a significant investment from China, but other than this the principal sources of M&A activity are Europe, North America and Asia. Some of the more significant recent transactions are: Betsson AB’s acquisition of the Malta-based Oranje and Kroon business through a combined share and assets deal for an initial purchase price of €100 million, of which €40 million payable in cash. The Intertain Group Limited (TSX: IT) acquisition of the entire issued share capital of Dumarca Holdings Limited, the Malta-based parent company of the Vera&John group for an initial payment of
26 S.L. 386.16.
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€44.5 million in cash and €36.5 million in shares. Both deals being good examples of the trend for the consolidation of the remote gambling business in Europe, a process in which Malta is a major player given the presence on the island of some of the world’s leading remote gambling operators.
Turning to the corporate services and advisory sector, KPMG’s acquisition and de-listing of Maltese company’s Crimsonwing resulted in the consolidation of KPMG’s Microsoft Dynamics teams in the UK and Netherlands with Crimsonwing in Malta to create an overall team of approximately 350 people allegedly making KPMG the largest ‘Big 4’ provider of Microsoft Dynamics consulting and implementation services in Europe and making KPMG the largest professional services firm in Malta. KPMG’s UK, Netherlands and Malta partnerships acquired reportedly acquired Crimsonwing for €26 million. Another notable local transaction in the corporate and professional services space was the merger of Grant Thornton Malta with EMCS, an independent advisory and tax services firm, resulting in Grant Thornton Malta’s advisory, accounting and tax services growing to over 90 people .
There were at least two notable transactions in the local banking sector. One of them was the sale of the Maltese subsidiary of Reiffeisen Bank to Banasino Investments Limited and Hillwood Insurance Co Ltd, part of Kronospan a global player in the manufacture and distribution of wood based panels. The other was the acquisition by Mediterranean Bank plc a Malta grown and licensed credit institution, of 100 per cent of the issued share capital of Volksbank Malta for a cash price of €35.3 million.
In the insurance industry Argus Insurance Agencies Limited (AIAL) announced the acquisition of the client portfolio of Millennium Insurance Agency Ltd (Millennium) as of November 2014.
The hotel industry also saw notable M&A activity in 2015 with International Hotel Investments plc (IHI), the largest Maltese hotel group announcing in January 2016 the acquisition of Island Hotels Group Holdings plc (IHGH), which brought with it a number of hotels in Malta, as well the target’s catering business and a 50 per cent shareholding in the company that runs the Costa Coffee franchise in Malta and Spain.
A clear trend is discernible in the corporate services area with global providers of corporate services seeking entry to the Maltese market by acquiring local firms, often accounting practices that double up as corporate service providers. At the same time there is increased consolidation happening locally. The other clear trend is consolidation in the remote gambling industry, a trend that has accelerated over the past three years driven by tightening of regulations in several European jurisdictions and the need for larger resources and compliance capabilities. M&A activity with a Malta connection in the hotel and catering sector remains primarily driven by IHI, which, after acquiring a landmark property in London and developing it into a luxury hotel launched in 2013, has shown that it has more appetite for growth through acquisitions.
V FINANCING OF M&A: MAIN SOURCES AND DEVELOPMENTS
The principal source of funding for M&A transactions with a Malta connection is private equity. Local banks typically impose strict requirements when it comes to financing
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M&A activity and interest rates that are not all that favourable. In general local banks tend to seek to limit their exposure to sectors that they know well, primarily local real estate.
A favoured method of raising liquidity by Maltese businesses including for M&A transactions is through debt securities. A notable local corporate bond issue in 2015 was International Hotel Investments plc’s (IHI) €45 million issue redeemable in 2025 with a coupon of 5.75, which was heavily oversubscribed on opening and closed on the same day. The bond served in large part to redeem a pre-existing €35 million 6.25 per cent bond with preference given on the new bond to pre-existing bondholders wishing to surrender their bonds for new bonds. The bond issue was announced at the beginning of April 2015, three months after IHI’s announcement of its intended acquisition of IHGH and opened and closed at the beginning of May with IHI’s general meeting voting in favour of the completion of the acquisition on 20 May 2015.
In February 2015 the Maltese government announced that it was launching an initiative called Venture Capital Malta, the aim of which was to stimulate venture capital funding. If a proper stimulus package is put together for venture capital it is likely that the consequence will be increased M&A activity down the line, particularly in the technology sector.
VI EMPLOYMENT LAW
The basic principle involved in the acquisition of a going concern is embedded in the generic legislation on employment law, the Employment and Industrial Relations Act (EIRA),27 which regulates conditions of employment.
The EIRA stipulates that when the transferee (the person who takes over the business) acquires ‘a business or other undertaking’ from the transferor (the person who sells the business), the former takes on full responsibility for the employees who, at that particular moment, are deemed to be in the employment of the transferor. Broadly speaking, the relevant employees would be those persons who are registered as employees of the transferor with the Employment and Training Corporation (ETC), which is the government agency overseeing engagement and termination of employment of all persons working in Malta. Thus, it is incumbent on the transferee during the due diligence process to ascertain that the employment list on the books of the transferor is identical to the undertaking’s employment list with the ETC prior to the actual purchase being concluded.
The transferee is also bound by law to take on all the officially registered employees on the same terms and conditions either ‘agreed in any collective agreement … until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement’ or, in the absence of a collective agreement, with ‘all the rights and obligations which the transferor had towards the employee’.
EIRA also stipulates that both transferor and transferee shall inform the representatives of the employees affected by the transfer of the date of transfer, the reasons
27 Supra, note 17.
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of the transfer, the implications of the transfer for the employees (namely, any legal, economic and social implications) and of any measures that may affect the employees in future.
The above obligations do not apply to any business that is being transferred as a result of bankruptcy or insolvency proceedings, which latter process may be under the supervision of a court appointed liquidator, and to seamen employed on ships, which are regulated under the Merchant Shipping Act.28
Further details about the transfer of business are found in the Transfer of Business (Protection of Employment) (TUPE) Regulations29 (the TUPE Regulations). An important clarification in the TUPE Regulations is the definition of ‘service provision change’, which incorporates a function that had first been carried out by the employer and that was subsequently outsourced to a contractor. This also includes a function transferred from one contractor to another, or from a contractor back to the employer himself. The function transferred must retain ‘its identity as an organised group of resources’ carrying out the same economic activity. Good examples of such functions are cleaning and security of premises, reception duties, and payroll processes, amongst others.
The TUPE Regulations make reference to the EIRA and open the parameters to include mergers and service provision changes, in addition to an outright acquisition of a business. The TUPE Regulations also govern transfers of economic activities that are not ‘operating for gain’, thereby including voluntary organisations and non-government organisations. These regulations are applicable to transfers taking place in Malta.
The TUPE Regulations go into such detail as reimbursement for the balance of vacation leave: the transferor is obliged to pay the transferee any balance of vacation leave which should have been taken by the employees prior to the sale or transfer of undertaking, and vice versa if more vacation leave (than the number of days awarded by law) had been taken prior to the sale or transfer. This principle also applies to any wages, pro-rata bonus (including government bonus) and weekly allowances due to employees registered on the company at the time of transfer or merger.
Furthermore, the TUPE Regulations stipulate that the transferee is obliged to re-engage any employees who had been made redundant prior to the official sale or transfer, and whose role becomes available once more within one year of the date of redundancy. In practical terms, this means that making employees redundant prior to the sale (so as not to have such employees on the official ETC list at the actual time of transfer or merger) will only oblige the transferee to take on these employees, under the same terms and conditions which they had enjoyed at the time of redundancy, once more if the company places adverts for these roles within one year of their redundancy.
The TUPE Regulations refer to the obligation of both transferor and transferee stipulated in the EIRA, to inform employees’ representatives of the date and reason of transfer and any implications thereto at least 15 days before the transfer is carried out. Both transferor and transferee are obliged to send a copy of the written statement given
28 Chapter 234, Laws of Malta.29 S.L. 452.85.
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to the employees’ representatives to the Director of Industrial Relations on the same day that it is issued. If the transfer includes changes to the conditions of employment of the employees, consultations shall be held between the employees’ representatives, the transferor and the transferee within seven days of the representatives being informed of the intended transfer. This means that consultations, and thus negotiations with the Union, if applicable, are required to take place prior to the actual transfer. Unions having ongoing employee representation are recognised as such after the transfer is affected.
However, this formal information process is restricted to undertakings that have more than 20 employees, irrespective of whether they are full time or part time. In the absence of such a headcount, the transferor still has the obligation of giving the employees themselves all the information passed on to the transferee (namely, contract of employment or written statement in terms of the Information to Employees Regulations) by the date of transfer of the business.
The Regulations explain that the transfer itself, whether of the whole business or of part of the undertaking, shall not constitute ‘sufficient grounds for dismissal’ of existing employees either by the transferor or the transferee. On the other hand, this provision shall not stand in the way of re-organisational changes in the workforce, although the employer will be regarded as responsible if such changes will result in termination of employment.
The above obligations are valid even in cases when the transfer is undertaken by an entity controlling the undertaking to be transferred, as long as the undertaking is located in Malta, irrespective of whether the undertaking itself is in control of the transfer or not.
Contravening the provisions in the TUPE Regulations carries a fine of not less than €1164.69 per person affected by the transfer.
VII TAX LAW
Malta’s corporate tax regime which has been in place since 1948 has been approved by the European Commission on Malta’s joining the European Union in 2004. Malta also meets international tax standards and is also included on the ‘white list’ set out by the OECD. The country operates a full imputation system in terms of which companies are taxed at a rate of 35 per cent. However, the shareholders of the companies are entitled to refund of the tax paid of the company. The tax refund may be of five-sevenths, six-sevenths, two-thirds or 100 per cent of the Malta tax paid depending on the source and nature of the income. Malta’s network of 70 plus double tax treaties further strengthens the country’s position as a key corporate location.
Malta adopted EU Council Directive 2005/19/EC30 on the common system of taxation applicable to mergers, divisions, transfer or assets and exchanges of shares concerning companies of different Member States in the Mergers, Divisions, Transfer of
30 Council Directive 2005/19/EC of 17 February 2005 amending Directive 90/434/EEC 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States.
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Assets and Exchange of Shares Regulations.31 The aim of this Directive is to eliminate obstacles in cross-border mergers between eligible entities situated in different Member States.
The Income Tax Act32 exempts from tax the transfer involving the exchange of shares on restructuring of holding upon mergers, demergers, divisions, amalgamations and reorganisation. The Duty on Documents and Transfers Act33 also provides for an exemption from duty on restructuring of holdings through mergers, demergers, amalgamations and reorganisations within a group of companies as defined.
As from 2013 restructuring that qualifies for tax relief in terms of the Income Tax Act and the Duty on Documents and Transfers Act are required to obtain a tax ruling and prior authorisation from the Commissioner for Revenue (the Commissioner). Authorisation would generally be granted if the Commissioner is satisfied that the transaction or transactions are to be effected for bona fide reasons and not form part of a scheme or arrangements of which the main purposes or one of the main purposes is avoidance of liability to duty or tax.
In terms of the Income Tax Act, merging companies may benefit from what is commonly referred to as the ‘step up clause’. A company resulting from a merger that (1) is registered in Malta as per the Cross-Border Mergers of Limited Liability Regulations and (2) acquires assets that on the day of the merger are situated outside Malta and owned by a company that is not domiciled or resident in Malta, may opt to have the assets so acquired via the merger to be deemed acquired at the day of the merger at a cost that is proved to the satisfaction of the Commissioner to be the market value.
Tax on capital gains is levied on gains generated on the transfer of certain assets including immoveable property situated in Malta, rights over securities, business, goodwill patents, trademarks, trade names and the beneficial interest in trust. Tax on capital gains is also subject to some exemptions such as for instance an exemption on the transfer of assets between a group of companies or an exemption from capital gains on transfer of shares if the transferor is a person not resident in Malta.
There are no exit taxes in Malta. From a VAT perspective the transfer of a going concern may be exempt from VAT
if some conditions are satisfied on the part of the transferor and the transferee.
VIII COMPETITION LAW
The Control of Concentrations Regulations34 take an ex ante approach in aiming to avoid excessive market power being gained by undertakings through mergers, acquisitions or joint ventures that would lead to the substantial lessening of competition on any given market. Where significant market power is held by an undertaking (enough for it to be considered ‘dominant’) and this is abused, or where anti-competitive agreements are
31 S.L. 123.72.32 Supra, note 21.33 Supra, note 22.34 S.L. 379.08.
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entered into between two or more undertakings, competition rules are in place to provide sanctions for such behaviour once it has taken place (ex post). Although merger control legislation attempts to prohibit mergers that would afford undertakings significant market power (enough to substantially lessen competition) it is not market power itself that is prohibited and sanctioned by competition law, but the anti-competitive behaviour of undertakings.
The Maltese Competition Act (the Competition Act) provides the national legislative framework for competition regulation in Malta. Articles 5 and 9 of the Competition Act are the substantive provisions that stipulate the competition law prohibitions and closely mirror Articles 101 TFEU and Article 102 TFEU under EU Competition law. Article 5 prohibits anti-competitive agreements between two or more undertakings, while Article 9 prohibits the abuse of a dominant position by an undertaking.
Any agreement between undertakings, decision by an association of undertakings or concerted practice between undertakings with the object or effect of hindering competition in line with the prohibition listed in Article 5(1) will be considered null and void in accordance with Article 5(2), unless one of the exceptions under Article 5(3) applies. Block Exemption Regulations are also in place (these may be referred to although they are currently expired) that exempt certain types of agreements that are not considered to be anti-competitive. These broadly cover vertical agreements and concerted practices, horizontal agreements, technology transfer agreements, specialisation agreements, and research and development agreements.
Art 9 prohibits the abuse by an undertaking of a dominant position. Dominance is defined in the Competition Act as ‘a position of economic strength held by one or more undertakings which enables it or them the power to prevent effective competition being maintained on the relevant market by affording it or them the power to behave, to an appreciable extent, independently of its or their competitors, suppliers or customers’. Article 9(2) lists examples of types of behaviour that would be considered an abuse. These may be largely classified into exploitative (in relation to one’s customers) or exclusionary (in relation to one’s competitors) abuses.
The Malta Competition and Consumer Affairs Authority Act (the MCCAA Act) provides for the set-up of the Malta Competition Affairs Authority, which includes the Office for Competition – the authority responsible for the regulation of competition law and merger control in Maltese markets. It also, together with the Competition Act, provides the Office with the necessary enforcement powers to investigate and sanction any potential breaches of competition law. The MCCAA Act brought with it major amendments to the Competition Act and, most significantly, decriminalised competition law breaches and introduced an administrative fining system based on that used by the European Commission for EU competition law breaches.
Undertakings and consumers who have suffered damages as a result of behaviour by an undertaking in breach of Articles 5 or 9 of the Competition Act may seek to recover such damages. A legal basis for such actions was introduced into the Competition Act by the MCCAA Act in 2011.
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The Collective Proceedings Act,35 which came into force in 2012, helps to create an incentive for consumers and undertakings to seek compensation, particularly where taking on an individual action would have been too burdensome and costly.
Draft Leniency Regulations were published by the Office for Competition in June 2013, and were followed by a consultation period. Such regulations aim to encourage undertakings involved in anti-competitive agreements to act as whistle-blowers in order for their fine to be reduced, or even waived, thereby allowing such agreements to be uncovered by the Office for Competition.
IX OUTLOOK
It is anticipated that the current level of transactional activity will continue over the coming 12 months in the sectors referred to above. A lot of this activity is driven by the desire to consolidate and achieve economies of scale and a geographic reach that spans beyond Europe. Another factor is the restructuring of businesses with increased focus on regulatory and tax efficiency with respect to operations in Europe.
In the next 12 months we are also likely to see a number of Maltese companies involved in the development of niche software products, as well as a handful of remote gambling business seeking admission to exchanges overseas, most likely outside the eurozone area.
Finally, if venture capital funding is properly stimulated as per the government’s stated intention we are likely to see an increased number of businesses, particularly in the technology sector, developing faster and potentially becoming the targets of acquisition by larger local and international players.
35 Chapter 520, Laws of Malta
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Appendix 1
ABOUT THE AUTHORS
JAMES SCICLUNAWH Partners James is a Malta advocate and a solicitor of the Senior Courts of England and Wales. He has practiced law in the UK and Malta both in private practice and as in-house counsel.
Before forming WH Partners with Olga Finkel, James held the position of chief of regulatory and corporate affairs with the Betclic Group as well as having been general counsel of Betclic and Expekt, two of the Betclic Group’s brands. Prior to that, he was a foreign lawyer and then a solicitor with London firm Jeffrey Green Russell’s company and commercial team.
His main areas of expertise are: mergers and acquisitions, joint ventures, international corporate and tax structuring in strictly regulated industries. He is particularly known for his in depth cross-border expertise of the gambling industry and also regularly acts for software developers and for operators in the leisure industry.
James graduated with an LLM summa cum laude in International Business Law from University College London after having been awarded a Chevening Scholarship by the British Foreign and Commonwealth Office in 2004. He holds a Doctor of Laws degree and a Bachelor of Arts degree in Law and Sociology from the University of Malta. He was admitted to the Bar in Malta in 2003 and to the Roll of Solicitors of England and Wales in 2007. He is a member of the International Masters of Gaming Law and the International Bar Association.
James is a lecturer in gaming law at the University of Malta and he speaks English, Maltese, Italian and French. He is ranked by the leading legal directories as a top M&A lawyer, as well as a leading lawyer globally in the gaming and gambling, IP, and sports and entertainment areas.
About the Authors
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WH PARTNERSLevel 5 Quantum House75 Abate Rigord StreetTa’ Xbiex XBX 1120MaltaTel: +356 20925100Fax: +356 [email protected] www.whpartners.eu
