A review and outlook of m&a
2018 and H1 2019 saw very strong M&A activity in CEE, both in the mid and higher end market, including some landmark transactions in which Schoenherr has acted as legal advisor in a prominent role.
The hottest industries were clearly telecommunications followed by banking/financial services, where the consolidation trend seen in previous years continues. In addition, some CEE jurisdictions saw a solid inflow of foreign investment in the production sector, while cities like Bucharest and Warsaw are also seeing growth in the local start-up sector. While M&A activity in CEE slowed at the beginning of H2 2019 in line with general market developments in Europe, it may be expected to pick-up again at the end of 2019 and in 2020.
The legal environment for M&A in CEE is also changing. On the one hand, these changes are driven by local legislation aimed at simplifying and facilitating business, and on the other by the implementation of EU Directives and other laws and regulations aimed at increasing transparency and combatting money laundering. Local legislators often seem to have taken a stricter approach than required under the respective EU Directives and imposed additional restrictions and transparency requirements. Especially noteworthy are the prohibition on issuing bearer shares in joint-stock companies in Bulgaria and Romania as well as the requirement in Poland (effective from 1 January 2021) to register all shares in joint-stock companies and partnerships limited by shares in the electronic register of shareholders. This adds to the ever-increasing number of disclosure and reporting obligations for companies and shareholders across Europe.
Trade Secret Protection – Bulgaria/EU
Implementing Directive (EU) 2016/943, the (first ever) Bulgarian Trade Secret Protection Act came into force in April 2019. Under the act, secret information enjoys protection from infringements by third parties, if the controller has taken measures to protect it. Otherwise it does not qualify as a "trade secret". It will be up to the competent courts to define what level of protection is needed so information may qualify as a "trade secret". With respect to M&A transactions, the new law has an impact on drafting and negotiating NDAs and on the scope of the legal due diligence.
Simplified Stock Corporations – Poland
As of 1 March 2020, Polish law will provide the option to incorporate so-called simplified joint-stock companies (prosta spółka akcyjna). This is specifically designed for start-ups, as its main features are no minimum share capital, the possibility to transfer shares without formal requirements, effectuation of certain corporate actions via email and other features aimed at simplifying company incorporation, operation and dissolution.
Tax Reporting Obligations – Poland/EU
Poland was the first country to implement Council Directive EU 2018/822 on mandatory disclosure rules in regard to cross-border tax planning. As of 1 January 2019 (applicable to transactions effectuated after 25 May 2018), beneficiaries of transactions as well as their advisors (including foreign advisors) are subject to reporting obligations with respect to certain tax-planning arrangements. The disclosure requirements under Polish law are broader than required under Council Directive EU 2018/822, as the respective provisions in the Polish tax code also apply to certain purely domestic transactions. Non-compliance with the required reporting obligations may trigger severe penalties. Directive EU 2018/822 will have to be implemented into local law in all EU jurisdictions with effect as of 1 July 2020 at the latest.
Telecommunications – CEE/SEE
After running mobile operations in the CEE region for 25 years, Norwegian mobile operator Telenor sold its wholly-owned mobile operations in Bulgaria, Hungary, Montenegro and Serbia, as well as the Hungary-based technology service provider Telenor Common Operation Zrt to the CEE private investment firm PPF Group for a consideration of EUR 2.8bln. The sale was completed in Q3 2018. Schoenherr acted as legal advisor to Telenor.
Banking – Czech Republic
Bausparkasse Schwäbisch Hall sold its 45 % stake in the Czech building savings bank Českomoravská stavební spořitelna, a.s. (ČMSS) to the Czech division of the KBC Group Československá obchodní banka, a.s. (ČSOB) for a purchase price of EUR 240m (the biggest banking deal in the Czech Republic in 2019). As a result of this transaction, ČSOB became the sole shareholder of ČMSS. Schönherr advised Bausparkasse Schwäbisch Hall alongside Gleiss Lutz.
Interim Dividends – Romania
Until recently, Romanian companies could distribute dividends to shareholders only annually upon approval of their annual financial statements. Law 163/2018 now permits companies to distribute their dividends annually or quarterly. In the case of quarterly dividend distribution during the financial year, the annual financial statements must show the partially distributed dividends. The amounts distributed during the financial year must then be adjusted upon approval of the annual financial statements and dividends distributed in excess of the balance sheet profit must be returned within 60 days of approval of the annual financial statements. Hence, shareholders who receive quarterly dividends may be subject to a clawback. Thus far, Romanian companies have been cautious about distributing interim dividends.
Production – Romania/Bulgaria/Serbia
Ericsson (Sweden) has acquired Katherine SE's (Germany) business division of mobile radio antennas and filters, including major operations in Romania, by way of an asset deal. The deal closed in Q3 2019. Schoenherr advised Ericsson on the Romanian aspects of the transaction alongside Hengeler Mueller acting as lead counsel.
Schoenherr also advised Smurfit Kappa on the acquisition of two separate corrugated cardboard production businesses in Bulgaria (a share deal and a going concern deal) as well as a paper mill and corrugated plant in Serbia.