Mergers & Acquisitions in 61 jurisdictions worldwide Contributing editor: Casey Cogut
2010 Published by Getting the Deal Through in association with: Aabø-Evensen & Co Advokatfirma Æ´LEX Arendt & Medernach Baião, Castro & Associados | BCS Advogados Bersay & Associés Bianchi Rubino-Sammartano & Associati Biedecki Biedecki Olejnik Bizconsult Law LLC Bowman Gilfillan Inc Brandao Teixeira, Ricardo e Foz Advogados Carey y Cía Cheok Advocates & Solicitors Corpus Legal Practitioners Coulson Harney Debarliev Dameski & Kelesoska Attorneys at law ELIG Estudio Trevisán Abogados Freshfields Bruckhaus Deringer LLP Gleiss Lutz Goodrich, Riquelme y Asociados Grata Law Firm Harneys Headrick Rizik Alvarez & Fernandez Herzog, Fox & Neeman Hoet Peláez Castillo & Duque Abogados Homburger AG Iason Skouzos & Partners Karanovic´ & Nikolic´ Kim & Chang LAWIN Law Office of Mohanned bin Saud Al-Rasheed in association with Baker Botts LLP Lideika, Petrauskas, Valiunas ir partneriai LAWIN Lloreda Camacho & Co Abogados Mallesons Stephen Jaques McMillan LLP Nagashima Ohno & Tsunematsu NautaDutilh Navarro Abogados Nielsen Nørager Nishith Desai Associates Odvetniki Šelih & partnerji, op, dno Pérez-Llorca PricewaterhouseCoopers Legal Salomon Partners Sayenko Kharenko Schönherr Setterwalls Advokatbyrå Siegler Law Office / Weil, Gotshal & Manges Simont Braun Simpson Thacher & Bartlett LLP Slaughter and May Thanathip & Partners Vlasova Mikhel & Partners Voicu & Filipescu Wolf Theiss WongPartnership LLP Wu & Partners, Attorneys-at-Law Žuric´ i Partneri
Mergers & Acquisitions 2010 Contributing editor: Casey Cogut Simpson Thacher & Bartlett LLP Business development manager Joseph Samuel Marketing managers Alan Lee George Ingledew Robyn Hetherington Dan White Tamzin Mahmoud Ellie Notley Subscriptions manager Nadine Radcliffe [email protected]
GettingTheDealThrough.com Assistant editor Adam Myers Editorial assistant Nina Nowak Senior production editor Jonathan Cowie Chief subeditor Jonathan Allen Senior subeditor Kathryn Smuland Subeditors Ariana Frampton Charlotte Stretch Editor-in-chief Callum Campbell Publisher Richard Davey Mergers & Acquisitions 2010 Published by Law Business Research Ltd 87 Lancaster Road London, W11 1QQ, UK Tel: +44 20 7908 1188 Fax: +44 20 7229 6910 © Law Business Research Ltd 2010 No photocopying: copyright licences do not apply. ISSN 1471-1230 The information provided in this publication is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. This information is not intended to create, nor does receipt of it constitute, a lawyer–client relationship. The publishers and authors accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of May 2010, be advised that this is a developing area.
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Global Oveview Casey Cogut and Sean Rodgers Simpson Thacher & Bartlett LLP iii European Overview Stephen Hewes and Richard Thexton Freshfields Bruckhaus Deringer LLP v Argentina Pablo Trevisán, Claudia Delgado and Laura Bierzychudek Estudio Trevisán Abogados 1 Australia Jason Watts and Nigel Hunt Mallesons Stephen Jaques 7 Austria Christian Herbst Schönherr 15 Belarus Tatiana Emelianova and Andrej Ermolenko Vlasova Mikhel & Partners 21 Belgium Sandrine Hirsch and Vanessa Marquette Simont Braun 26 Brazil Maria P Q Brandão Teixeira Brandao Teixeira, Ricardo e Foz Advogados 32 Brunei Robin Cheok Van Kee Cheok Advocates & Solicitors 38 Bulgaria Kaloyan Todorov Wolf Theiss 44 Canada Sean Farrell and Robert McDermott McMillan LLP 49 Chile Pablo Iacobelli and Cristián Eyzaguirre Carey y Cía 54 China Martyn Huckerby, Sharon Wong and Erik Leyssens Mallesons Stephen Jaques 59 Colombia Enrique Álvarez Posada and Santiago Gutiérrez Borda Lloreda Camacho & Co Abogados 66 Croatia Bojan Fras and Dinka Kovac ˇevic´ Žuric´ i Partneri 72 Cyprus Pavlos Aristodemou and Nancy Charalambous Harneys 78 Czech Republic Paul Sestak and Michal Pravda Wolf Theiss 82 Denmark Thomas Weisbjerg, Jakob Mosegaard Larsen and Martin Rudbæk Nielsen Nielsen Nørager 87 Dominican Republic Roberto Rizik, Sarah De León Perelló and Claudia Taveras Headrick Rizik Alvarez & Fernandez 92 England & Wales Simon Robinson Slaughter and May 97 France Sandrine de Sousa and Yves Ardaillou Bersay & Associés 105 Germany Gerhard Wegen and Christian Cascante Gleiss Lutz 111 Greece Evgenia Stamatelou-Mavromichali Iason Skouzos & Partners 119 Hong Kong Larry Kwok and Cally Fang Mallesons Stephen Jaques 125 Hungary David Dederick, László Nagy and Eszter Katona Siegler Law Office / Weil, Gotshal & Manges 130 India Kartik Ganapathy Nishith Desai Associates 135 Israel Alan Sacks and Daniel Lipman Lowbeer Herzog, Fox & Neeman 142 Italy M auro Rubino-Sammartano and Robert Rudek in cooperation with Simone Rizzi and Marina Rubini Bianchi Rubino-Sammartano & Associati 147 Japan Ryuji Sakai, Kayo Takigawa and Yushi Hegawa Nagashima Ohno & Tsunematsu 154 Kenya Richard Harney and Haanee Khan Coulson Harney 159 Korea Sang Hyuk Park and Gene Oh Kim Kim & Chang 164 Latvia Raymond Slaidins and Kristine Meija LAWIN 168 Lithuania Rolandas Valiu¯nas and Vita Daukšaite˙ Lideika, Petrauskas, Valiunas ir partneriai LAWIN 173 Luxembourg Guy Harles and Saskia Konsbruck Arendt & Medernach 180 Macedonia Emilija Kelesoska Sholjakovska and Elena Miceva Debarliev Dameski & Kelesoska Attorneys at law 187 Mexico Jorge A Sánchez-Dávila Goodrich, Riquelme y Asociados 193 Montenegro Ivan Nonkovic´ and Patrick Callinan Karanovic´ & Nikolic´ 199 Netherlands Willem Calkoen and Martin Grablowitz NautaDutilh 205 Nigeria Theophilus I Emuwa and Chinyerugo Ugoji Æ´LEX 211 Norway Ole K Aabø-Evensen Aabø-Evensen & Co Advokatfirma 216 Poland Ludomir Biedecki and Radoslaw Biedecki Biedecki Biedecki Olejnik 223 Portugal V ictor de Castro Nunes, Maria José Andrade Campos and Cláudia de Meneses Baião, Castro & Associados | BCS Advogados 229 Romania Georgiana Badescu Voicu & Filipescu 235 Russia Anton Klyachin and Igor Kuznets Salomon Partners 240 Saudi Arabia B abul Parikh and Rabie Masri Law Office of Mohanned bin Saud Al-Rasheed in association with Baker Botts LLP 244 Serbia Predrag Milovanovic PricewaterhouseCoopers Legal 250 Singapore Wai King Ng WongPartnership LLP 255 Slovenia Natasa Pipan Nahtigal and Bostjan Kavsek Odvetniki Šelih & partnerji, op, dno 263 South Africa Ezra Davids and David Yuill Bowman Gilfillan Inc 269 Spain Vicente Conde Pérez-Llorca 274 Sweden A nders Söderlind, Carl-Johan Bune, Anders Holmgren, Mattias Bergström and Ola Grahn Setterwalls Advokatbyrå 280 Switzerland Claude Lambert, Dieter Gericke, Dieter Grünblatt and Gerald Brei Homburger AG 285 Taiwan Jerry Chen Wu & Partners, Attorneys-at-Law 292 Thailand Thanathip Pichedvanichok and Chawaluck Sivayathorn Thanathip & Partners 298 Turkey Tunç Lokmanhekim ELIG 303 Ukraine Vladimir Sayenko Sayenko Kharenko 310 United Arab Emirates Patrick Ko, Omar Momany and Mohammad Tbaishat Freshfields Bruckhaus Deringer LLP 317 United States Casey Cogut and Sean Rodgers Simpson Thacher & Bartlett LLP 322 Uruguay Alfredo Navarro Castex and Alfredo Héctor Navarro Navarro Abogados 327 Uzbekistan Bobir Karimov and Ravshan Rakhmanov Grata Law Firm 331 Venezuela Jorge Acedo P and José Alberto Ramírez L Hoet Peláez Castillo & Duque Abogados 336 Vietnam Phong Le, Hanh Tran, Hai Ha and Huyen Nguyen Bizconsult Law LLC 340 Zambia C harles Siamutwa, Sharon Sakuwaha, Namakuzu Shandavu and David Chakoleka Corpus Legal Practitioners 346 Appendix: International merger control David E Vann Jr and Ellen L Frye Simpson Thacher & Bartlett LLP 351
Goodrich, Riquelme y Asociados
Mexico Jorge A Sánchez-Dávila Goodrich, Riquelme y Asociados
Types of transaction How may businesses combine?
Businesses may combine through mergers, tender offers, public offers, joint ventures and asset or share purchase agreements. 2
Statutes and regulations What are the main laws and regulations governing business combinations?
In general, business combinations are regulated by the Mexican General Law on Business Companies (GLBC), the Foreign Investment Law (FIL) and its regulations (regarding specific activities), the Federal Competition Law (FCL) and its regulations (applicable only when the transaction exceeds the thresholds established therewith), the Securities Market Law (SML) (mergers, tender offers and public offerings). The Federal Labour Law (FLL) applies to mergers and asset purchase agreements (substitution of labour liabilities). As default provisions, the Commercial Code (CC) and Federal Civil Code (FCC) may also be applicable. On the other hand, specific regulations may apply, depending on the type of target company in the transaction, namely financial institutions or bankrupt companies as target companies. 3
Governing law What law typically governs the transaction agreements?
Commercial conveyances regarding business combinations are governed by federal laws. As commercial acts are within the federal subject matter jurisdiction, the GLBC governs all forms of mercantile entities as well as mergers whereas the CC governs joint venture agreements thereupon, while the CC and FCC are set forth as default provisions and will be applicable only if the GLBC does not foresee a special provision. Publicly held companies are regulated by the SML, business combinations thereof will be additionally regulated by general bulletins issued by the National Banking and Securities Commission. 4
Filings and fees Which government or stock exchange filings are necessary in connection with a business combination? Are there stamp taxes or other government fees in connection with completing a business combination?
If the target company is a corporation, an extraordinary shareholders’ meeting must be held, whereby shareholders will discuss and ultimately approve or reject the merger. The GLBC requires the meeting to be formalised before a notary public; in order for the merger to be effective against third parties, the public deed issued by the notary must be registered at the Public Registry of Commerce of the corporate domicile of the target company. Furthermore, both combined enterprises must publish their final balance through the www.gettingthedealthrough.com
Federal Official Gazette; mergers will be effective three months after publication thereof. Regarding joint ventures, the agreements must be in writing and there are no special registration requirements, unless a certain contribution is made through real estate property. Share purchase agreements must generally be in writing and recorded in the company’s corporate books. Furthermore, certain authorisations are required when dealing with certain economic activities, namely authorisation by the Foreign Investment Commission, Federal Competition Commission, National Banking and Securities Commission (NBSC) (exchange security houses, financial institution mergers and public offerings require prior authorisation). Under Mexican Law, there are no stamp taxes applicable to business combinations. However, there are certain filing requirements before tax and foreign investment authorities when dealing with mergers, such as a merger notification, cancellation of the taxpayers’ registry of the merged entity, performance of an external audit of the financial statements of both enterprises and presentation of the last annual tax return of the merged company. Carrying out these requirements may carry a tax advantage. Furthermore, participants in joint venture agreements may obtain a taxpayers’ identification in Mexico. 5 Information to be disclosed What information needs to be made public in a business combination? Does this depend on what type of structure is used?
The information to be disclosed and made public will depend on the structure of the business combination. Regarding publicly held companies, the SML provides that companies participating in the Mexican Securities Market should make available to the public certain information regarding relevant events and information that affect the issuer, namely prospectus, corporate acts, relevant administration policies, etc, and the financial, legal and economic status of the issuer. Said rules also apply regarding tender and public offerings as forms of business combinations. Additionally, public offerings require prior authorisation from the NBSC; once the authorisation is granted, the public offering is registered before the National Securities Registry and information will be disclosed to the public. As to private companies, only the information regarding the merger must be published at the Official Federal Gazette. On the other hand, joint ventures are not required to be registered, unless these agreements exceed the thresholds determined in the FCL; if so, the appropriate notifications or approval requests must be filed before the Federal Competition Commission.
Disclosure of substantial shareholdings What are the disclosure requirements for owners of large shareholdings in a company? Are the requirements affected if the company is a party to a business combination?
Mexican law requires disclosure for shareholders in a company. Publicly held companies require disclosing to the investment community of relevant information regarding the issuer, quarterly and annual reports. A disclosure of their corporate structure should be filed with certain authorities, such as the NBSC, specifically the National Securities Registry (open to the public), National Foreign Investment Registry (for statistical purposes only, not open to the public) – namely, shareholders, corporate group, subsidiaries and in kind or cash flow on foreign investment. Regarding a merger, financial or ending balance sheet information will be disclosed through a publication made in the Federal Official Gazette. As to joint venture agreements, there are no disclosure requirements under Mexican law. 7
Duties of directors and controlling shareholders What duties do the directors or managers of a company owe to the company’s shareholders, creditors and other stakeholders in connection with a business combination? Do controlling shareholders have similar duties?
Administrators will respond to civil responsibility, which may only be exercised following a shareholders’ agreement made through a shareholders meeting. Regarding privately held companies, 33 per cent of the corporate capital may directly file suit for civil responsibility against any administrator. On the other hand, according to the SML as to publicly held companies, depending on the type adopted, 5 to 15 per cent of the corporate capital is required to file suit for civil responsibility of the administrators. Both shareholders and the company itself can file for suit against the administration body. The minimum fiduciary duties owed to the company’s shareholders are imposed by the SML, namely the duty of due diligence – to act in good faith and in the company’s best interest, the administrator acting with loyalty to the company and, finally, applying the best efforts rule regarding business decisions. Furthermore, company administrators holding a public offering must deliver to the public their opinion regarding the suggested offer price, and shall refrain from participating in acts or operations that aim to obstruct the progress of the public offering proceeding. Controlling shareholders do not have the obligation or right owed to the company. However, the SML grants broader rights to minority shareholders and new duties for directors or managers, such as the duty of care and the duty of loyalty for the members of the board of directors. The duty of care obliges directors to always discharge their duties in good faith and in the best interests of the company. They must request and properly revise the information they deem necessary, solicit the participation of other relevant officers and auditors at the board meetings, regularly attend the meetings and adjourn them when proper information is lacking, and reveal relevant information to the board and to the different committees created under the new securities market law. The duty of loyalty, on the other hand, is based on the need for confidentiality and the avoidance of conflicts of interest. It also prevents directors and individuals with decision-making authority from seeking particular interests or trying to seize a business opportunity that pertains to the corporation. From a practical standpoint, this duty is crafted to prevent directors from voting on matters in which they have a conflict of interest. Also, directors must follow certain guidelines on transactions with related parties, refrain from taking advantage of the assets of the corporation or benefiting from privileged information to which they might have access. Several criminal
Goodrich, Riquelme y Asociados and economic sanctions are provided in case of violations of these duties. These changes made in the new securities law have been expected for a long time by the legal community. The law aims to align domestic regulations with modern international standards; this is particularly true of issues such as disclosure of information to the investors, minority rights and corporate governance. 8
Approval and appraisal rights What approval rights do shareholders have over business combinations? Do shareholders have appraisal or similar rights in business combinations?
Business combinations, such as mergers, must be previously approved by the company’s shareholders through an extraordinary meeting. If the meeting convenes at first call, there must be at least 75 per cent of the corporate equity present, unless the company by-laws require a higher quorum. Regarding a second call, resolutions will be valid when adopted by more than 50 per cent of the corporate equity. Furthermore, shareholders have the right to judicially oppose the business combination; in privately held companies a minimum of 33 per cent of the outstanding and issued shares may file before a court a request to oppose the resolutions adopted by the shareholders’ meetings. Regarding publicly held companies, the SML requires 20 per cent of the corporate equity to oppose a merger transaction. As to appraisal rights provided to shareholders in business combinations, the GLBC determines the obligation to establish in the company’s articles of incorporation the expression of the amount contributed by the shareholders, the value in the case of asset contribution and the criteria followed regarding the assessment of such contribution. 9
Hostile transactions What are the special considerations for unsolicited transactions?
Unsolicited (hostile) transactions are governed by the Securities Market Law. Hostile takeovers or public tender offers are made to acquire by any means, directly or indirectly, ownership of 30 per cent or more of the ordinary shares of a stock corporation registered with the National Securities Registry, in or outside the stock exchange, through one or several simultaneous or successive transactions of any nature. They are subject to the authorisation of the National Banking and Securities Commission, based on a prospectus and must be extensively made to the different series of shares including those with limited or no voting rights and the consideration offered to all series must be the same. All offers will be subject to the following conditions: • be held open for at least 20 business days and five additional business days if NSBC decides there are any material changes from the original offer; • be made for at least 10 per cent of the capital stock of a publicly held company with bidders willing to take 100 per cent upon completion. If additional securities are available to a bidder who is unwilling to take them, the remaining securities will be pro-rated; • while offers remain open, terms and conditions may be altered as long as the amendments are clear to the bidder. Any changes to original terms after a shareholder has tendered its securities gives the shareholder the right to withdraw its securities; • be open to all shareholders at the same price; • no premiums paid to any person without formal approval and written consent from the board of directors of the publicly held company, with full disclosure to the public;
Getting the Deal Through – Mergers & Acquisitions 2010
Goodrich, Riquelme y Asociados • the board of directors, together with the general manager, must make a public statement regarding their planned response on any tender offers within 10 days. The board is also prohibited from preventive action against a proposed bid; and • false information to the public by market participants is prohibited (what constitutes false information is not currently clarified in the law). The following acquisitions are exempted from being made through a tender offer: • acquisitions made at market value resulting from the redistribution of ordinary shares held among members of a same group of persons, even if said group disappears, as long as the acquiring parties have been shareholders for more than five years and the controlling group resulting from said acquisition has held a relevant percentage of the capital stock; • those that derive from capital reductions by virtue of which a person or group of persons ends up holding a 30 per cent stake or more of the ordinary shares; • where the viability of the company is at stake and the ordinary shares are acquired as a consequence of capital increases or business reorganisation means such as mergers, spin-offs, asset purchases and debt capitalisation; • judicial or extrajudicial adjudication of shares by virtue of the foreclosure and execution of collateral created in favour of financial entities; and • acquisitions made through inheritance, legacies, donations among spouses, concubines and other family members; as well as any transactions consistent with the protection of minority shareholders’ interests that is subject to NBSC authorisation. If any tender offer is carried out in violation of the aforementioned requirements, the resulting shareholders shall not be able to exercise any of the rights covered by the shares until the requirements have been satisfied. The exercise of any rights under such circumstance shall be null and void and the shareholders from other series shall have full voting powers until the tender offer is duly carried out. 10 Break-up fees – frustration of additional bidders Which types of break-up and reverse break-up fees are allowed? What are the limitations on a company’s ability to protect deals from thirdparty bidders?
Break-up and reverse break-up fees are generally allowed in Mexico as a deal protection device. Break-up fees imply fixed payments paid by one merger partner to another pursuant to specified conditions resulting in a planned merger failing. Like other deal protection devices, break-up fees are included in the merger agreement. Broken down into its structural components, a break-up fee clause generally consists of the payment amount and a list of enumerated events that trigger the payment. The payment amount is fixed at either a percentage of the transaction’s value or a specific amount of money. The triggering events usually fall into one of three broad categories: • the company’s breach of any warranties or covenants; • shareholder opposition/challenge of the merger; or • the acceptance of a third-party bid. The board’s exercise of a fiduciary out usually triggers the break-up fee, especially if the board then enters into another merger agreement with a competing bidder. The failure of the company to meet its material warranties and representations often dissolves the merger and also triggers the payment. For instance, a break-up fee may be triggered if one partner pledges to obtain the necessary antitrust or other regulatory approvals but does not do so. The common factor in most triggering events is that one party has intentionally reneged on its promises or negligently failed to take steps necessary to consummate the merger. www.gettingthedealthrough.com
mexico Break-up fees, as a deal protection device, are subject to the following conditions: • they must be approved in a special shareholders’ meeting without the opposition of 5 per cent of the present shareholders; • must not exclude one or more shareholders different from the person trying to obtain control, from the economic benefits resulting from the break-up fees; • do not totally restrict the takeover of the company; and • do not contravene the regulations provided by the SML in connection with hostile takeover or nullify the equity rights of the acquiring company. Additionally and as a general rule, the GLBC provides shareholders with pre-emptive rights to acquire new shares being issued; additionally, it allows shareholders to establish options in the by-laws in the case of third-party bids, and even subject the transfer or assignment to any third parties to the prior authorisation of the board of directors. Regarding sociedades anónimas promotoras de inversion (SAPIs), which are stock corporations designed to promote domestic and foreign investment by allowing certain exemptions from general corporate regulations created under the SML, the shareholders of these may adopt almost any kind of contractual structures to protect deals from third-party bidders. Unlike other jurisdictions, the GLBC expressly prohibits financial assistance in relation to the subscription and acquisition of the company’s shares. Additionally, companies shall not issue shares under their face or nominal value. On the other hand, the GLBC prevents corporations from acquiring their own shares; however, the SML will allow the acquisition of such shares in the case of SAPIs. Such acquisition must be approved by the board of directors and shall be made with proceeds from the equity, in which case the latter does not need to be decreased, or said acquisition can be made against the capital stock, if and when they are cancelled or converted into issued unsubscribed treasury shares. The shares so held by the company cannot be represented or voted during any shareholders’ meeting of any series of shares, nor exercise any corporate or economic right as long as said shares are owned by the company. Publicly held companies may also acquire their own shares if such acquisition is made through a domestic stock exchange, at market value and the price is paid in similar terms as SAPIs. In any case, the resources destined to the payment of such shares shall not exceed the net profit balance of the company in any given fiscal year, and the company shall not be in default of any payment of registered debentures or securities, among other requirements. 11 Government influence Other than through relevant competition regulations, or in specific industries in which business combinations are regulated, may government agencies influence or restrict the completion of business combinations, including for reasons of national security?
Certain business combinations exceeding the thresholds provided by the FCL, defined as the merger, acquiring of control or any other action through which corporations, associations, stocks, equity interest, trusts and assets in general are concentrated (combined) and carried out among competitors, suppliers, customers or any other economic agents, must be notified before they are made and may be challenged and sanctioned when their objective or effect is to diminish, damage or deter competition and free access to equal, similar or substantially related goods and services. Other than that, business combinations are not restricted in general. The following may not be challenged pursuant to said law: concentrations with a favourable resolution, except where that resolution has been obtained based on false information, and concentrations that do not require prior notification, a year after they were carried out.
mexico Additionally, mergers and share purchases regarding financial institutions such as banks, corporations that control financial groups, securities brokers and intermediaries, mutual funds, corporations that operate mutual funds, corporations that distribute shares of mutual funds, authorised warehouses, credit unions, financial leasing companies, financial factoring companies, savings and loans companies, special purpose financial companies among other companies are subject to approvals and authorisations from government agencies such as the Ministry of Finance, the NBSC and the Central Bank, as the case may be. In particular, attention should also be paid to international transactions by virtue of which foreign financial entities acquire 51 per cent or more of local financial entities converting the latter into ‘affiliates of foreign financial entities’. Government agencies are not vested with any legal authority to influence or restrict the completion of business combinations including for reasons of national security. Nonetheless, the FIL provides certain express restrictions preventing private investment (either foreign or domestic) in sensitive sectors such as nuclear energy and airport control and supervision activities, among others. 12 Conditional offers What conditions to a tender offer, exchange offer or other form of business combination are allowed? In a cash acquisition, may the financing be conditional?
The conditions allowed basically refer to those mentioned in question 9. On the other hand, the financing may be conditional as there are no express limitations or restrictions preventing it. 13 Financing If a buyer needs to obtain financing for a transaction, how is this dealt with in the transaction documents?
The transaction documents will typically have a credit facility and ancillary instruments for securities are those that the creditor will request. Recently, the most pervasive form of security for large-scale transactions has been the guarantee trust, whereby assets encumbered as security are entrusted to an institution licensed to serve as a trustee so that said trustee may foreclose upon them in the event of default without having to resort to a court, as happens in common foreclosures. Essentially, all rights and assets of the business concern to be acquired would become trust property thereunder (including shares and other securities, as well as real estate property, entitlements and rights over personal property, among others) and would only be released insofar as the borrower complies with the respective loan. Such an agreement would be filed before the corresponding Public Registry of Commerce. Ancillary security instruments are often resorted to, such as bonds issued by bonding companies for a given percentage of the loan, pledges without transfer of possession over equipment and machinery, which allow for an ongoing business concern to continue with its operations uninterrupted, and, although they are not forms of security per se, the joint and several obligation of the controlling shareholders to-be and, sometimes, their signatures as sureties on promissory notes issued by the acquired company. 14 Minority squeeze-out May minority stockholders be squeezed out? If so, what steps must be taken and what is the time frame for the process?
In general terms and pursuant to the GLBC, minority stockholders can be squeezed out by limiting their voting rights, specifically their ability to participate and vote regarding capital increases, even though they would still have pre-emptive rights to subscribe new shares resulting from such increase. In this case, however, such shareholders may face the choice of having to invest a large amount of
Goodrich, Riquelme y Asociados additional or new capital over which they have no control or for which they receive little or no return; if they do not subscribe, the new shares have their proportionate interest in the company reduced or diluted significantly. More specifically, the SML allows shareholders to adopt almost any type of restrictive covenants and provides that a SAPI’s shareholders may covenant different schemes such as puts, calls, tag-alongs, drag-alongs and so on, which might have the effect of squeezing out of certain shareholders. No specific time frames apply. 15 Cross-border transactions How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?
Cross-border transactions may be structured through joint ventures, mergers in and between a foreign and national entity, and asset or stock purchase agreements. Business combinations involving crossborder transactions in Mexico are usually structured through a joint venture agreement. This agreement is free from any registration requirements. Foreign issuers may register before the National Securities Registry in order to trade their securities within the Mexican Stock Market. This registry is made public and the National Banking and Securities Commission is in charge of registering securities public offerings, intermediation in the stock market. The Registry will have information regarding public offers abroad, regarding securities issued in Mexico or by Mexican persons. 16 Waiting or notification periods Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations?
Business combinations are not generally subject to waiting or notification periods; however, merger resolutions shall be recorded in the Public Register of Commerce and published in the Official Gazette of the domicile of the companies that are to merge. Each company must publish its last balance sheet and such company or companies that are to disappear will also publish the procedure adopted for extinguishing their liabilities. The merger shall not be effective until three months after the registration has been made. During this time, any creditor of the merging companies may start summary proceedings to oppose the merger, which shall be suspended until such time as a sentence declaring the opposition to be inadmissible has become final. The aforementioned period of time having elapsed without opposition being entered, the merger may become effective and the subsisting company or that created as a result of the merger shall take over all the rights and obligations of the companies, which disappear. Notwithstanding the foregoing, the merger shall take effect immediately upon its recording if it is stipulated that all liabilities of the merging companies be met, or if an amount sufficient to cover such debts is deposited in a credit institution, or if the consent of all creditors is obtained. For this purpose, all immature debts shall be deemed as having already become due and payable. For spin-offs, said statute provides for a 45-day waiting period as of the aforesaid filing for such a transaction to take effect. However, the Securities Market Law provides certain exceptions, for example, that the creditors of merging or spinning-off brokerdealers have the same 90 days to file their claims, but only to have their credits settled, as the merger will take effect as of the filing of the authorisation thereto from the Securities and Banking Commission before the Public Registry of Commerce. This is also applicable to rating companies, pricing suppliers and providers of trading systems.
Getting the Deal Through – Mergers & Acquisitions 2010
Goodrich, Riquelme y Asociados
Update and trends A bill has been recently introduced by the president into the Mexican Congress on 6 April 2010 to amend the FCL, which is intended to strengthen the powers of the Federal Competition Commission (COFECO). The respective bill was approved by the Chamber of Deputies on 29 April 2010, and has been sent to be reviewed in the Senate, which will not happen before 1 September 2010, when Congress reconvenes. The first relevant change concerns ‘relative’ monopolistic practices: acts, contracts, agreements, procedures or combinations that result in the undue displacement of other agents in the market. One of the conditions for monopolistic practices is that the agent concerned have substantial power in the relevant market where the practice is supposed to take place; as per the amendment (articles 13 and 13 bis of the bill) the existence of ‘relevant power’ will be gauged not just with regards to one agent, but also with regards to two or more, so as to encompass economic groups as well. The amended article 21 is also worth mentioning, as it expedites and streamlines the proceedings for COFECO to resolve that a given concentration notified to it is not impairing free competition in instances such as: • the acquirer will be participating in the relevant market for the first time; • the acquirer did not have control of the economic agent to be acquired and its increased participation does not further empower it to influence its behaviour; • the acquirer of partnership interests or shares already had control and increased its holding; or • other such cases as the corresponding regulations may provide for. These instances are already provided for under the Regulations to the FCL in force; however, under the project they will be an imperative for COFECO. Article 21 bis 1 adds instances where notice to COFECO of a concentration is not necessary, such as: • when the transaction implies a corporate restructuring; • when the holder of a controlling interests augments its participation; • when it is made through a trust; • when it takes place abroad and concerns businesses that are not resident in Mexico for tax purposes; • when the acquisition is made by a mutual fund; • when it concerns shares or derivatives in which the underlying assets are shares and other requisites are met; • when the acquisition is made by mutual funds for purposes of speculation; and • in other cases as provided for under the Regulations. One of the main aims of the amendments in question is strengthening COFECO to prosecute and combat monopolies; article 24 in the project empowers the latter to carry out investigations and inspections in situ to seize files and documents, for which it currently requires a court order, to prohibit the agents involved from continuing with acts that presumably constitute a monopolistic practice or a forbidden concentration. In the interest of transparency, this provision also mandates that the opinions of COFECO be published and that it issue guidelines on competition as well as criteria on: • sanctions and their reduction; • monopolistic practices; • concentrations; • investigations thereof and research on benefits to consumers; • determination of substantial power of economic agents; • determination of relevant markets; • enjoining of acts; and • petitions to dismiss criminal proceedings. However, the aforesaid inspections may not limit the ability of the investigated subject to produce, distribute and commercialise goods or services, and the injunctions may only be issued in cases where the practice or concentration in question may irreversibly damage free competition, as per resolution of the Board proposed by its chairman, and in order to prevent or avoid damage, diminishment or inhibition of free competition. The injunction may only last for four months, which can be extended twice.
A fundamental aspect of the reform is the increase of sanctions, since having them indexed to Mexico City’s minimum daily wage resulted in fines for insignificant amounts. Now, under article 25, this index is used to calculate fines of up to several thousand times that wage against the individuals engaged or involved in a sanctioned deal on behalf of the economic agents concerned or who induce, aid or abet such deals. In addition, COFECO can order the suppression or reversion of the monopolistic practice or concentration concerned and having increased the amount of minimum days’ wage that can be assessed as penalties, COFECO may also fine the agents involved up to 10 per cent of their income for failure to abide by the conditions established by COFECO for the respective concentration or for absolutely monopolistic practices, 8 per cent for relatively monopolistic practices or concentrations and failing to comply with an injunction, and 5 per cent for failing to provide notice of a concentration for which notice to COFECO was required. Article 39 now provides, in addition to the existing remedy of review by the Board, the possibility of challenging these resolutions and a ruling following a review before the Federal Fiscal Court for Administrative Justice, which may be further challenged by way of a constitutionality suit (an amparo law suit) before the federal judiciary. This bill has another four projects attached, namely, to amend the Federal Criminal Code, the Federal Tax Code, the Federal Law of Administrative Contention Proceedings and the Organic Law of the Federal Fiscal Court for Administrative Justice, of which only the first two are relevant for the intents and purposes of this project. The amendment to the Federal Criminal Code removes the previously existing crime of ‘affecting national consumption’, sanctioned with imprisonment for three to 10 years and a fine of 200,000 days’ wages, concerning agreements and combinations of producers, industrialists, merchants or transporters who seek to achieve an increase in prices or affect the supply to consumers, or cause a suspension of production, processing, distribution, offer or sale of merchandise or purveyance of services in order to achieve an increase in the prices or affect the supply to consumers, and other similar conducts. The project adds article 254 bis to the Federal Criminal Code, which provides for a term of three to 10 years in prison and 1,000 to 3,000 days’ wages as a fine for a person who signs, orders or executes agreements, contracts or arrangements between economic competitors with the intent to: • fix, raise, coordinate or manipulate the sale or purchase price of goods or services; • establish an obligation to produce, process, distribute, commercialise or acquire only a restricted or limited amount of goods or the purveyance or transaction of a restricted or limited amount of services; • divide, distribute, assign or impose portions or segments of an actual or potential market for goods or services; or • establish or coordinate a position in or absence from procurement or auction proceedings. This crime shall be prosecuted at the instance of COFECO after it has resolved on its own the particulars of the case. However, entities that apply for consent decrees (leniency programme) under article 33 bis 3 of the LFCE will be exonerated from criminal charges, and charges will be dismissed if such entities abide by the prescriptions of COFECO. The project also amends article 69 of the Federal Fiscal Code, whereby an exception to tax secrecy is provided for so that it will not apply to investigations on money laundering nor to the requirements of COFECO in assessing the amounts of fines applicable to entities that fail to disclose information on their income, or provide false or inaccurate information. The rest of the amendments concern judicial and administrative processes. There is great public support for this highly anticipated bill. Against general expectations, it was passed by the deputies by 386 votes and only 15 against it. However, it must still make its way through the Senate, which is much more pro-big business than the deputies and where other projects may be attached to this one. Finally, Mexico is successfully coming out of the financial crisis and, therefore, M&A activity is increasing steadily.
mexico 17 Sector-specific rules Are companies in specific industries subject to additional regulations and statutes?
Regulated sectors such as energy, finance, transportation and telecommunications often times have additional requisites that must be reviewed on a case-by-case basis. 18 Tax issues What are the basic tax issues involved in business combinations?
The merger of companies shall not be considered as a taxable event for federal taxes if the following actions, notices, returns and information are fulfilled: • the surviving company shall present a notice of merger to the tax authorities within the month following the date of the merger, and with some exceptions contained in the law, the surviving company must continue to carry on for one year the same activities it was engaged in before the merger as well as those of the merged companies; • the surviving company must present the last annual tax return of the merged company as well as the informative returns; • it is necessary to present notices of cancellation of the registration at the Taxpayers’ Registry for each merged company, attaching copy of the minutes of the shareholders’ meeting containing the resolution of merger. The merger of companies entails the obligation to audit the financial statements of the surviving company and of the merged company by an independent public accountant; • if real estate is transferred as a consequence of the merger, the surviving or newly created company shall pay the Real Estate Acquisition Tax at the rate prevailing in each state, which currently throughout Mexico is between 2 per cent and 4 per cent on the value of the property; • no VAT shall be paid in connection with property transferred as a result of a merger of companies if the requirements for not considering the merger as a taxable event are met. The balance of the net taxed profit account of the merged company may be transferred to the surviving or newly created company. Fiscal losses pending amortisation in the merged company are not transferable to the surviving company; • an authorisation from the tax authority will be required to carry out a merger if the company participated in a split-off or merger in the past five years; and • if the merger is being made as a result of a reorganisation of a group of companies, additional requirements must be fulfilled. The Income Tax Law does not consider for income tax purposes that a merger produces transfer of property among the surviving company and the merged companies if the surviving company complies with the preceding requirements and as long as after the merger, the sur-
Goodrich, Riquelme y Asociados viving company continues performing the same activities previously performed by itself as well as by the merged companies, during a minimum period of one year. This requirement shall not be applicable in the following cases: when income derived from the principal activity of the merged company related to the last 12-month tax year proceeds from leasing of goods utilised in the same activity of the surviving company; or when the merged company has obtained its income from the surviving company in more than 50 per cent or the latter has obtained its income from the merged company in more than 50 per cent. Asset purchases (acquisitions) and joint ventures, on the other hand, may entail tax consequences as the payment of VAT in the case that assets, tangible or intangible, are sold, or if the transactions produce taxable income under the Income Tax Laws provisions. 19 Labour and employee benefits What is the basic regulatory framework governing labour and employee benefits in a business combination?
A merger, an asset purchase and any other business combination entailing the transmission of an economic entity, constitute, for labour purposes, a substitution of employer. The acquisition of an ongoing business (assets and employees) entails such concept and the purchaser or acquirer of the business becomes liable with the former employer for all labour compensations and obligations for a period of six months counted as of the date of notification of the substitution to the employees or to the union. After the six-month period only the new employer will be liable. 20 Restructuring, bankruptcy or receivership What are the special considerations for business combinations involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring?
Business combinations involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring process are caught by the provisions of the Law of Commercial Insolvency, which even applies to Mexican branches of foreign companies or corporations. Any merger or business combination involving a distressed company must be approved by the receiver or bankruptcy trustee and the court. In the case of a merger, the surviving entity will absorb all liabilities, contingencies and obligations entailing an assignment of debt from the merged entity to the surviving one and therefore, creditors of the distressed company may oppose such merger if it impairs the ability of the merged company to pay its debts for which the insolvency or bankruptcy proceeding was initiated. If a business combination is proposed as part of a creditors’ agreement aiming to the reorganisation of the distressed company, the latter must also be approved by creditors representing 50 per cent or more of the total amount recognised in favour of the recognised creditors and the amount corresponding to secured creditors.
Jorge A Sánchez-Dávila
Paseo de la Reforma No. 265 – 19 Col Cuauhtémoc 06500 Mexico City Mexico
Tel: +52 55 5533 0040 / through 55 Fax: +52 55 5525 1227 www.goodrichriquelme.com
Getting the Deal Through – Mergers & Acquisitions 2010
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Mergers & Acquisitions 2010 ISSN 1471-1230